Empirical analysis for antitrust policy commonly uses accounting margins as inputs into merger screening tools. This paper shows how these margins can be combined with a static demand model to estimate a set of price elasticities for storable goods that are consistent with dynamic demand responses to permanent, rather than transitory price changes. As a result, demand dynamics that create inter-temporal substitution for storable goods are better captured by the resulting set of price elasticities. To illustrate this method, I apply it to the UK laundry detergent industry from 2002 to 2012. I present evidence that product innovations in this industry that lower storage costs affect demand dynamics and hence the degree of bias of price elasticities that come from static demand models. I also show how adjusting price elasticities to reflect demand dynamics can lead to different policy conclusions. I illustrate this by assessing whether there is any evidence that anti-competitive conduct of a laundry detergent cartel in mainland Europe had any effect on the UK laundry detergent market.
High-dimensional inventories and consumer dynamics: demand estimation for fast moving consumer goods
New version coming soon
This paper develops a high-dimensional dynamic discrete-continuous demand model for storable fast moving consumer goods. Assumptions of existing models are relaxed while retaining computational tractability. As a result, the model captures rich inter- and intra-temporal substitution patterns, allows for a detailed understanding of dynamic consumer behaviour, and provides a framework with wide applicability. To estimate and solve the dynamic demand model, I use techniques from approximate dynamic programming, large-scale dynamic programming in economics, machine learning, and statistical computing. In this paper I apply the model to the UK laundry detergent sector using household level purchase data.
Work in Progress
Storability and alcohol taxation joint with Lars Nesheim
Industry structure and price dynamics in storable good industries
The effect of the financial crisis on bank lending to SMEs joint with Ben Hemingway