Consumer Choice Over Shopping Baskets

TL;DR

This paper develops a new structural model for continuous demand systems using consideration sets, applied to Portuguese supermarket data to analyze intra-store competition and consumer behavior during COVID-19.

Contribution

It introduces a novel estimation approach for large choice sets in differentiated products markets, capturing detailed demand elasticities and consumer preferences.

Findings

Mark-ups remained stable during the pandemic period.

A slight increase in mark-ups was observed post-pandemic in high-mark-up goods.

Implied mark-ups align with observed price volatility and consumer preference shifts.

Abstract

I introduce a novel approach to structural modelling and estimation of continuous demand systems, utilising consideration sets to analyse differentiated products markets with very large choice sets and purchases over multiple goods, multiple units, and across product categories. I apply it to study intra-store competition in the Portuguese supermarket industry between 2020 and 2023, during which the country faced the COVID pandemic. Anonymised transaction-level point-of-sale data is sufficient to estimate price elasticities across almost 30 000 goods and more than 500 product categories. Results suggest mark-ups remained stable throughout the sample period, with a short-lived, slight increase post-pandemic observed only in the highest-mark-up-percentile goods. The implied mark-ups match observed price volatility, profit margin surveys, as well as reports on shifting consumer tastes during the sample period.