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The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data *
Author(s) -
Dossche Maarten,
Heylen Freddy,
Van den Poel Dirk
Publication year - 2010
Publication title -
scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/j.1467-9442.2010.01621.x
Subject(s) - economics , curvature , almost ideal demand system , rigidity (electromagnetism) , price elasticity of demand , demand curve , econometrics , engel curve , elasticity (physics) , microeconomics , on demand , price index , commerce , mathematics , geometry , production (economics) , physics , quantum mechanics , thermodynamics
We estimate the curvature of the demand curve for a wide range of products. We use an extension of Deaton and Muellbauer’s Almost Ideal Demand System and scanner data from a large euro area retailer. We find evidence that the overall price elasticity of demand is higher for price increases than for price decreases. However, the overall degree of curvature is one to two orders of magnitude smaller than the value economists usually impose. This suggests that the shape of the demand curve is unlikely to be the only source of real price rigidity.