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|
|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.