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Research Details

Elasticity of Household Retailer Choice

Abstract

Using transaction-level income and spending data, we demonstrate that households are highly elastic in their choice of individual retailers. For instance, about 30% of short-term marginal spending is done at retailers that the household has never patronized before. The degree of elasticity is asymmetric and varies by industry, size of the firms, characteristics of the customer base, location, and whether a firm is public or private. Because these retailers are not identical, household retailer choice can drive important aggregate trends. We show that the elasticity of household retailer choice has implications not only for entrepreneurship and firm-level competition, but can affect trends in aggregate cash-flow volatility, firm size, profitability, and labor intensity. Moreover, retailer choice is highly dispersed at a household level, with little overlap in retailers across individual households. Most of this dispersion is driven by location and household demographics and not by household income.

Type

Working Paper

Author(s)

Lorenz Kueng, Scott Baker, Brian Baugh

Date Published

2018

Citations

Kueng, Lorenz, Scott Baker, and Brian Baugh. 2018. Elasticity of Household Retailer Choice.

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