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The kinked demand curve and price rigidity: evidence from scanner data*

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Abstract
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.
Keywords
Almost Ideal Demand System, C33, real price rigidity, Price setting, UNITED-STATES, REAL RIGIDITIES, BUSINESS CYCLES, E3, D12, MODELS, EURO AREA, COMPETITION, ELASTICITIES, INFLATION, DYNAMICS, SYSTEM

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Citation

Please use this url to cite or link to this publication:

Chicago
Dossche, Maarten, Freddy Heylen, and Dirk Van den Poel. 2010. “The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data*.” Scandinavian Journal of Economics 112 (4): 723–752.
APA
Dossche, M., Heylen, F., & Van den Poel, D. (2010). The kinked demand curve and price rigidity: evidence from scanner data*. SCANDINAVIAN JOURNAL OF ECONOMICS, 112(4), 723–752.
Vancouver
1.
Dossche M, Heylen F, Van den Poel D. The kinked demand curve and price rigidity: evidence from scanner data*. SCANDINAVIAN JOURNAL OF ECONOMICS. 2010;112(4):723–52.
MLA
Dossche, Maarten, Freddy Heylen, and Dirk Van den Poel. “The Kinked Demand Curve and Price Rigidity: Evidence from Scanner Data*.” SCANDINAVIAN JOURNAL OF ECONOMICS 112.4 (2010): 723–752. Print.
@article{1152127,
  abstract     = {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.},
  author       = {Dossche, Maarten and Heylen, Freddy and Van den Poel, Dirk},
  issn         = {0347-0520},
  journal      = {SCANDINAVIAN JOURNAL OF ECONOMICS},
  keyword      = {Almost Ideal Demand System,C33,real price rigidity,Price setting,UNITED-STATES,REAL RIGIDITIES,BUSINESS CYCLES,E3,D12,MODELS,EURO AREA,COMPETITION,ELASTICITIES,INFLATION,DYNAMICS,SYSTEM},
  language     = {eng},
  number       = {4},
  pages        = {723--752},
  title        = {The kinked demand curve and price rigidity: evidence from scanner data*},
  url          = {http://dx.doi.org/10.1111/j.1467-9442.2010.01621.x},
  volume       = {112},
  year         = {2010},
}

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