Estimating Price Elasticity using Market-Level Appliance Data

TitleEstimating Price Elasticity using Market-Level Appliance Data
Publication TypeReport
Year of Publication2015
AuthorsK. Sydny Fujita
Date Published08/2015
Report NumberLBNL-188289

This report provides and update to and expansion upon our 2008 LBNL report “An Analysisof the Price Elasticity of Demand for Appliances,” in which we estimated an average relativeprice elasticity of -0.34 for major household appliances (Dale and Fujita 2008).Consumer responsiveness to price change is a key component of energy efficiency policyanalysis; these policies influence consumer purchases through price both explicitly andimplicitly. However, few studies address appliance demand elasticity in the U.S. market andpublic data sources are generally insufficient for rigorous estimation. Therefore, analystshave relied on a small set of outdated papers focused on limited appliance types, assuminglong-term elasticities estimated for other durables (e.g., vehicles) decades ago are applicableto current and future appliance purchasing behavior. We aim to partially rectify this problemin the context of appliance efficiency standards by revisiting our previous analysis, utilizingdata released over the last ten years and identifying additional estimates of durable goodsprice elasticities in the literature.Reviewing the literature, we find the following ranges of market-level price elasticities:-0.14 to -0.42 for appliances; -0.30 to -1.28 for automobiles; -0.47 to -2.55 for other durablegoods. Brand price elasticities are substantially higher for these product groups, with mostestimates -2.0 or more elastic. Using market-level shipments, sales value, and efficiency leveldata for 1989-2009, we run various iterations of a log-log regression model, arriving at arecommended range of short run appliance price elasticity between -0.4 and -0.5, with adefault value of -0.45.

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