Non Linear Price Elasticities: Findings from a Breakfast Cereals Market

Price elasticities and cross-price elasticities have typically been assumed to be constant for all price changes, when modelling market shares. Yet there is increasing evidence that deep price cuts and heavy promotions have a disproportionate effect, which depends on where a brand is positioned in the market. In this book, the breakfast cereal market is being studied. Weekly scanner data were analysed using multilevel modeling methods to provide a complete understanding of this market. The effects of price changes and promotions are estimated by using dummy variables for own and competitive products? price changes and promotions for the product modelled. Price decreases and price increases are modelled separately to find out whether consumers react in different ways to price increases and price decreases. The results show strong evidence that the percentage change in price has a non-linear effect on the percentage change in share for the own price effects. This book is useful for graduate and upper-level undergraduate students and researchers in Marketing Research.