New Empirical Generalizations on the Determinants of Price Elasticity

Abstract

The importance of pricing decisions for firms has fueled an extensive stream of research on price elasticities. In an influential meta-analytical study, Tellis (1988) summarized price elasticity research findings until 1986. However, empirical generalizations on price elasticity require modifications because of (1) changes in market characteristics (i.e., characteristics of brands, product categories, and economic conditions) and (2) changes in the research methodology used to assess price elasticities. Therefore, the authors present a meta-analysis of price elasticity with new empirical generalizations on its determinants. Across a set of 1851 price elasticities based on 81 studies, the average price elasticity is −2.62. A salient finding is that over the past four decades, sales elasticities have significantly increased in magnitude, whereas share and choice elasticities have remained fairly constant. The authors find that accommodating price endogeneity has a strong (magnitude-increasing) impact on price elasticities. A striking null result is that accounting for heterogeneity does not affect elasticities significantly. The authors also present an analysis that explains the difference between their findings and Tellis's findings, and they indicate which new price elasticity studies are most desirable.