You save money when you buy in bulk: does volume-based pricing cause people to buy more beer?

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Abstract

This paper uses supermarket scanner data to estimate brand- and packaging-specific own- and cross-price elasticities for beer. We find that brand- and packaging-specific beer sales are highly price elastic. Cross-price elasticity estimates suggest that individuals are more likely to buy a higher-volume package of the same brand of beer than they are to switch brands. Policy simulations suggest that regulation of volume-based price discounts is potentially more effective than a tax increase at reducing beer consumption. Our results suggest that volume-based price discounting induces people to buy larger-volume packages of beer and may lead to an increased overall beer consumption. Copyright © 2008 John Wiley & Sons, Ltd.

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