Micro-responses to Shocks: Pricing, Promotion, and Entry
36 Pages Posted: 25 Oct 2019 Last revised: 20 Mar 2021
Date Written: March 2, 2021
We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia their market share collapsed from 16.5% in January to below 1% in March and never fully recovered: by 2009 it was 6.3%. By analyzing micro-level (scanner) price and sales data, we find that: (i) Danish firms lowered prices but kept the product mix the same; (ii) non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles; and (iii) non-Danish firms chose to introduce products that were similar to the Danish in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings.
Keywords: Boycotts, multi-product firms, demand shock, Saudi Arabia
JEL Classification: F11, F16, L2, I24, J24
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