Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping
42 Pages Posted: 9 Apr 2019
Date Written: April 2019
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.
Keywords: competition in grocery markets, Cross-border shopping, product differentiation
JEL Classification: F15, H73, L66, R20
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