Case Assignment: Base Price Analysis

You are the regional manager for a chain of grocery stores $(86$ stores in total$).$ You currently carry $3$

types of laundry detergent $($Tide in a $128oz$ box, Tide in a $640z$ box, and Wisk is a $640z$ box$).$ As the

grocery store manager, you can determine the retail price to put on each type of laundry detergent. You

collect some historical transaction data from your stores aggregated to the weekly level. This

information includes information such as the store ID$,$ week, and the quantity sold and average prices

for the $3$ laundry detergents in each store for each week $($see grocery$\_$store$\_$data$\_$dictionary.csv$).$

In this in$-$class assignment, you will use base price analysis to uncover the own$-$ and cross$-$price

elasticities of the $3$ laundry detergents. This will help you to understand how sensitive customers are to

changes in prices for the detergents and identify whether and how much each type of detergent is

competitive with the other. Specifically, you will need to do the following:

Get the data $($grocery$\_$store$\_$data.csv$)$ set up to run base price analysis. $[$Hint: You should not

include any weeks where there was a product on promotion, and you want to run a log$-$log

model to get the elasticities. Feel free to clean the data in $R$ or Excel $($or whatever program is

easiest$).]$

Estimate the own$-$ and cross$-$price elasticities for the three laundry detergents. In your model

make sure to account for prices, time trends, and differences across stores. $[$Hint: You will need

to estimate $1$ log$-$log linear regression model for each laundry detergent. Also, if you want to

include a variable as a factor variable $($e$.$g$.,$ store ID$),$ you can use the as$.$factor$($x$)$ function in R$.$

Just put the name of the factor variable is place of $x.]$

Make sure you have the answer to each of the following when you group returns to class:

a$.$ Which detergent has the highest$/$lowest price elasticity?

b$.$ Which detergents directly compete $($i$.$e$.,$ have a significant cross$-$price elasticity$)$ with

each other? $[$Hint: Competition can be asymmetric, so make sure to check both cross$-$

price elasticities.$]$

c$.$ Was there any result that you found surprising? If so$,$ what was it and how can you

explain it$?$

Resources available with this assignment:

grocery$\_$detergent$\_$data.csv

please solve given questions in image