MODELING THE DISTRIBUTION OF PRICE SENSITIVITY AND IMPLICATIONS FOR OPTIMAL RETAIL PRICING

This article focuses on the distribution of price sensitivity across c onsumers. We employ a random-coefficient logit model in which brand-sp ecific intercepts and price-slope coefficients are allowed to vary acr oss households. The model is estimated with panel data for two product categories. The implications of the estimated model are deduced throu gh an optimal retail pricing analysis that combines the panel data wit h chain-level cost figures. We test parametric distributional assumpti ons using semiparametric density estimates based on series expansions.