Hump-shaped Cross-price Effects and the Extensive Margin in Cross-border Shopping

45 Pages Posted: 21 Dec 2018

See all articles by Frode Steen

Frode Steen

Norwegian School of Economics (NHH) - Department of Economics

Richard Friberg

Stockholm School of Economics - Department of Economics

Simen Ulsaker

Norwegian School of Economics (NHH) - Department of Economics

Date Written: December 17, 2018

Abstract

This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly storexcategory 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.

Keywords: Cross-border shopping, competition in grocery markets, product differentiation

JEL Classification: F15; H73; L66; R20

Suggested Citation

Steen, Frode and Friberg, Richard and Ulsaker, Simen, Hump-shaped Cross-price Effects and the Extensive Margin in Cross-border Shopping (December 17, 2018). NHH Dept. of Economics Discussion Paper. Available at SSRN: https://ssrn.com/abstract=3305073 or http://dx.doi.org/10.2139/ssrn.3305073

Frode Steen (Contact Author)

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway
+47 55 959 259 (Phone)
+47 55 959 543 (Fax)

Richard Friberg

Stockholm School of Economics - Department of Economics ( email )

P.O. Box 6501
Sveavagen 65
S-113 83 Stockholm
Sweden
+46 8 736 9645 (Phone)
+46 8 720 7752 (Fax)

Simen Ulsaker

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

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