DP13281 Micro-responses to shocks: Pricing, promotion, and entry

Author(s): Alexis Antoniades, Sofronis Clerides, Mingzhi Xu
Publication Date: October 2018
Date Revised: October 2019
Keyword(s): boycotts, demand shock, multi-product firms, Saudi Arabia
JEL(s): L10
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13281

We study the market response to firm-specific shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia their market share collapsed from 16.5% in January to below 1% in March and never fully recovered: by 2009 it was 6.3%. By analyzing micro-level (scanner) price and sales data, we find that (i) Danish firms lowered prices but kept the product mix the same; (ii) non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles; and (iii) non-Danish firms chose to introduce products that were similar to the Danish in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.