Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping

This paper examines the effect of cross-border shopping on grocery demand in Norway using monthly store×category sales data from Norway’s largest grocery chain 2011-2016. The sensitivity of demand to foreign price is hump-shaped and greatest 30-60 minutes’ driving distance from the closest foreign store. Combining continuous demand, fixed costs of cross-border shopping and linear transport costs `a la Hotelling we show how this hump-shape can arise through a combination of intensive and extensive margins of cross-border shopping. Our conclusions are further supported by novel survey evidence and cross-border traffic data.

Keywords: cross-border shopping, competition in grocery markets, product differentiation

JEL Classification: F15; H73; L66; R20

Suggested Citation: Suggested Citation

Steen, Frode and Ulsaker, Simen A. and Friberg, Richard, Hump-Shaped Cross-Price Effects and the Extensive Margin in Cross-Border Shopping (September 23, 2019). NHH Dept. of Economics Discussion Paper No. 20/2019, Available at SSRN: https://ssrn.com/abstract=3478575 or http://dx.doi.org/10.2139/ssrn.3478575