Observational price variation in scanner data does not reproduce experimental price elasticities

We compare experimental elasticity estimates from 82 “test” stores to observational estimates from 34 “control” stores of a Midwestern grocery retailer. The experiment generated 389,890 prices and lasted 35 weeks. During the experiment, the average experimental elasticity is -0.34, whereas the average observational elasticity is -1.97. The gap is even wider in the difference-in-differences, and replicates at the category and the product levels. We cannot reconcile this gap by controlling for promotions, conducting an event study around each price change, focusing on base-price changes, accounting for longer-term price effects, disaggregating estimates by price level and price-change magnitude, or instrumenting with chain price, lagged price, raw input price, or wholesale price.