DP13650 Hump-shaped cross-price effects and the extensive margin in cross-border shopping
|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.