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

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

Abstract

This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly store X 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 à 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.

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