Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping
55 Pages Posted: 1 Nov 2019
Date Written: September 23, 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: cross-border shopping, competition in grocery markets, product differentiation
JEL Classification: F15; H73; L66; R20
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