New Empirical Generalizations on the Determinants of Price Elasticity

TLDR

Pricing decisions are central to firm strategy, prompting extensive research on price elasticities, yet existing meta‑analyses must be updated to reflect evolving market characteristics and methodological advances. This study conducts a comprehensive meta‑analysis to derive updated empirical generalizations on the determinants of price elasticity. The authors analyze 1,851 price elasticities drawn from 81 studies, aggregating results across diverse product categories and market conditions. They find an average elasticity of –2.62, with sales elasticities growing in magnitude over four decades while share and choice elasticities remain stable; price endogeneity markedly increases elasticity magnitude, heterogeneity has negligible effect, and the analysis explains differences from Tellis (1988) and identifies promising future research directions.

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.