Micro-responses to shocks: pricing,promotion, and entry* |
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Authors: | Alexis Antoniades Sofronis Clerides Mingzhi Xu |
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Institution: | 1. Georgetown University in Qatar, 23689 Doha, State of Qatar;2. University of Cyprus, 1678 Nicosia, Cyprus;3. INSE at Peking University, 100871 Beijing, China |
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Abstract: | We study the market response to firm-specific demand shocks in a natural experiment setting. In 2006, a boycott of Danish products in several Arab countries was devastating for Danish cheese products firms. In Saudi Arabia, their market share collapsed from 16.5 percent in January to below 1 percent in March, and never fully recovered; by 2009, it was 6.3 percent. By analyzing micro-level (scanner) price and sales data, we find the following. (i) Danish firms lowered prices but kept the product mix the same. (ii) Non-Danish firms kept prices constant but changed their product mix by introducing new products and new product bundles. (iii) Non-Danish firms chose to introduce products that were similar to the Danish products in characteristic space in order to compete head-to-head. We complement the analysis with a theoretical framework that helps to account for our main findings. |
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Keywords: | Boycotts demand shock multi-product firms Saudi Arabia |
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