Affiliation:
1. Department of Agricultural Economics Purdue University West Lafayette Indiana USA
2. Morrison School of Agribusiness Arizona State University Mesa Arizona USA
3. Division of Agricultural Sciences and Natural Resources Oklahoma State University Stillwater Oklahoma USA
Abstract
AbstractDespite extensive research on retailers' price responses to demand shocks, much less is known about their non‐price responses. Using heterogeneity in timing, location, and magnitude of income and wealth shocks associated with the 2008 Great Recession, we explore how US retail stores adjusted product offerings under local demand shocks. We find that stores offer fewer products and varieties besides lowering prices. Using a structural demand model, we quantify the net welfare impact of the price and assortment adjustments. On average, the consumer welfare losses from variety reduction more than offset the welfare gains from price reductions.