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

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 for...

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Bibliographic Details
Published in:American economic journal. Microeconomics 2022, Vol.14 (2), p.408-438
Main Authors: Friberg, Richard, Steen, Frode, Ulsaker, Simen A.
Format: Article
Language:English
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Summary: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. (JEL D12, F31, L11, L81)
ISSN:1945-7669
1945-7685
1945-7685
DOI:10.1257/mic.20190302