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Item Aggregates and Price Elasticity

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Authors
SONG, INSEONG
Issue Date
2010-06
Publisher
College of Business Administration (경영대학)
Citation
Seoul Journal of Business, Vol.16(1): 45~64
Keywords
Item AggregatesPrice ElasticityLogit Model
Abstract
This study provides analytical results on the systematic relationship
between the elasticities obtained from item-aggregated data and those from
SKU level data. It is shown that the brand level (or any aggregate level)
elasticities are share-weighted averages of SKU elasticities. As SKUs in
a brand are substitutes each other in general, the own brand elasticities
would be smaller in magnitude than the own SKU elasticities and the crossbrand
elasticities will be larger than cross-SKU elasticities. It is also found
that when the SKU level demand function is given by a homogeneous
logit model with the latent utility being linear in price, the price sensitivity
parameter estimated from the brand level data should be the same as that
from SKU level data if the brand level model fits data well and the brand
prices are given by the weighted averages of SKU prices with the weights
being within-brand SKU shares.
ISSN
1226-9816
Language
English
URI
http://hdl.handle.net/10371/75573
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College of Business Administration/Business School (경영대학/대학원)Dept. of Business Administration (경영학과)Seoul Journal of BusinessSeoul Journal of Business Volume 16, Number 1/2 (2010)
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