We demonstrate that the Almost Ideal Demand System can be applied in a retail context. The advantage of using the system is that it fulfills the restrictions of the traditional Microeconomic theory. We also apply Singular Value Decomposition to guarantee negative semi-definiteness of the Slutsky matrix. The results are intuitive in interpretation. We found negative own price elasticities, the expenditure elasticities made sense and the utility levels for individual customers could be derived. Given the existing price policy of the retailer, we suggest an alternative price policy that optimizes consumers’ utility and, as a consequence, improves profitability.
|Publication status||Published - 2014|
|Event||CERR 2014 - |
Duration: 1 Jan 2014 → 1 Jan 2014
|Period||1/01/14 → 1/01/14|