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Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping

  • Richard Friberg
  • Frode Steen
  • Simen A. Ulsaker
American Economic Journal: Microeconomics
vol. 14, no. 2, May 2022
(pp. 408-38)
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Abstract

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 2012–2016. The sensitivity of demand to the 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.

Citation

Friberg, Richard, Frode Steen, and Simen A. Ulsaker. 2022. "Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping." American Economic Journal: Microeconomics, 14 (2): 408-38. DOI: 10.1257/mic.20190302

Additional Materials

JEL Classification

  • D12 Consumer Economics: Empirical Analysis
  • F31 Foreign Exchange
  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L81 Retail and Wholesale Trade; e-Commerce
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