Less is More Expensive: Income Differences in Bulk Buying

Posted: 29 Oct 2019 Last revised: 10 Nov 2019

See all articles by Mallick Hossain

Mallick Hossain

University of Pennsylvania, School of Arts & Sciences, Department of Economics, Students

Date Written: November 8, 2019

Abstract

Quantity discounts are an effective way for households to save money. My paper explores how large quantity discounts are, how bulk buying differs by income and what factors affect the bulk buying decision. Using Nielsen’s granular store-level and household-level data, I show that quantity discounts are large for a wide range of products and low-income households are less likely to buy in bulk. I estimate that low-income households could reduce their grocery expenditures by 5%, saving an aggregate of $5.4 billion annually, if they bought in bulk like high-income households. By augmenting the Nielsen data with novel data I collected on state-level unit-price regulations and new data on warehouse club entry, I find evidence that a combination of cognitive costs, store preferences, and storage costs discourage low-income households from realizing these savings. I then estimate a discrete choice model of household purchasing behavior to quantify how bulk buying changes when cognitive costs and storage costs are reduced. Counterfactual simulations show that mandating the display of unit prices, which has only been adopted by nine states, would reduce the bulk buying gap between the highest and lowest income households by 27%.

Keywords: bulk discount, quantity discount, retail, cognitive constraints, storage costs

JEL Classification: D10, I30

Suggested Citation

Hossain, Mallick, Less is More Expensive: Income Differences in Bulk Buying (November 8, 2019). Available at SSRN: https://ssrn.com/abstract=3472425

Mallick Hossain (Contact Author)

University of Pennsylvania, School of Arts & Sciences, Department of Economics, Students ( email )

160 McNeil Building
3718 Locust Walk
Philadelphia, PA 19104
United States

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