Does Price Elasticity Vary with Economic Growth? A Cross-Category Analysis

This study investigates how consumer price sensitivity for consumer packaged goods changes over the business cycle. Using a large data set covering 31 product categories over 11 years, the authors estimate price elasticities and examine their relationship with macroeconomic indicators, such as gross domestic product and unemployment. The results show that, on average, consumers become more price sensitive during economic downturns. This effect, however, varies significantly across product categories. For categories that are more discretionary or have higher prices, the increase in price sensitivity during recessions is more pronounced. The findings have important implications for pricing strategies over the business cycle, suggesting that firms may need to adjust their pricing and promotional activities in response to changing economic conditions.

Recommended citation: Gordon, B. R., Goldfarb, A., & Li, Y. (2013). "Does Price Elasticity Vary with Economic Growth? A Cross-Category Analysis." Journal of Marketing Research. 50(1), 4-23.
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