Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping

42 Pages Posted: 9 Apr 2019

See all articles by Frode Steen

Frode Steen

Norwegian School of Economics (NHH) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 2019

Abstract

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

Suggested Citation

Steen, Frode, Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping (April 2019). CEPR Discussion Paper No. DP13650, Available at SSRN: https://ssrn.com/abstract=3368147

Frode Steen (Contact Author)

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

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