An empirical relationship between price elasticity and price levels

Abstract

This study examines price competition between Duty-Free Stores (DFSs). The primary research question is the relationship between the own- and cross-store price elasticities, on the one hand, and the average price levels of DFS products, on the other hand. Using a unique data set of DFS sales in Korea combined with a hierarchical Bayesian model, we show that the own- and cross-store price elasticities increase significantly with the average price level.

Keywords:

• retail competition
• price elasticity
• Bayesian model
• duty-free store

JEL Classification:

• M31
• C15
• C23
• L11