The Price Elasticity of Selective Demand: A Meta-Analysis of Econometric Models of Sales

Abstract

The author describes a meta-analysis of econometric studies that estimated the elasticity of selective sales or market share to price. The literature review yielded 367 suitable price elasticities from about 220 different brands/markets. The results indicate that the price elasticity is significantly negative and, in absolute value, eight times larger than the advertising elasticity obtained from a prior meta-analysis. The omission of distribution or quality, the use of only cross-sectional data, and temporal aggregation lead to severe biases in the estimates of price elasticity. The elasticity also differs significantly over the brand life cycle, product categories, estimation methods, and countries.