DP13650 Hump-shaped cross-price effects and the extensive margin in cross-border shopping
Author(s): | Frode Steen |
Publication Date: | April 2019 |
Date Revised: | April 2019 |
Keyword(s): | competition in grocery markets, Cross-border shopping, product differentiation |
JEL(s): | F15, H73, L66, R20 |
Programme Areas: | Industrial Organization |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=13650 |
This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly store*category sales data from Norway's largest grocery chain 2011-2016. The sensitivity of demand to foreign price is hump-shaped and greatest 30-60 minutes' driving distance from the closest foreign store. Combining continuous demand, fixed costs of cross-border shopping and linear transport costs `a la Hotelling we show how this hump-shape can arise through a combination of intensive and extensive margins of cross-border shopping. Our conclusions are further supported by novel survey evidence and cross-border traffic data.