Research on Magnitude and Determinants
4 Magnitude of Price Elasticity
In order to obtain a more comprehensive understanding of the magnitude of price elasticity both data sources, the academic publications (chapter 4.1) and the consulting projects (chapter 4.2), are utilized. The first step was to conduct a detailed study by study review in both areas to create a database on the magnitude of price elasticity. Detailed information on the price elasticities were recorded, particularly on the type of product and the brand, to enhance the current knowledge on the magnitude of price elasticities by being able to perform more detailed analyses, especially by product category.
For each study the reported price elasticities were identified and recorded including further information on product category, brand and brand sizes. This enabled the author to show a general overview of the price elasticity data (chapter 4.1.1) as well as more specific overviews by product category (chapter 4.1.2).
The academic data set consists of 863 price elasticities. The frequency distribution in figure 4-1 and the descriptive values are close to those of Bijmolt/Van Heerde/Pieters (2005). The mean price elasticity is -2.51 with a median of -2.21 and a standard deviation of 1.81. On average, the change in demand is two and a half times the change in price; given a 10% price reduction demand will increase by 25.1%. Half of the data (50.8%) lie between -1 and -3. ← 48 | 49 →
Figure 4-1: Frequency Distribution of Price Elasticities – Academic Data Set
The Amoroso-Robinson relation...
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