Price Points and Thresholds in Retail Food Demand

Retailers are constantly forced to make strategic decisions regarding the frequency and magnitude of price and quantity discounts. Demand studies have established that consumer response to food retail price and quantity discounts produce demand irregularities. Traditional demand analysis failed to account for demand irregularities and often result in specification bias. In a theoretical framework demand irregularities can be explained using the concept of price points and price thresholds. Presence/absence of price points and price thresholds directly impact the profitability of the retailers. The primary contribution of this work is the development of a feasible method by which price points can be rigorously identified and incorporated into demand systems. Methods and findings of this study are useful to both private and public sector demand policy analysts.