The Effect of Online Shopping on Grocery Demand
Department of Economics
Michigan State University
Friday, February 1, 2019
Taylor-Hibbard Seminar Room (Rm103)
12:00 pm-1:15 pm
This paper utilizes novel household panel data to analyze the effect of online grocery shopping on grocery demand. In order to obtain a causal estimate of the impact of online grocery shopping on purchasing decisions, I utilize variation in the timing that an online shopping service was introduced as a source of exogenous variation in the decision to shop online. Local average treatment effects indicate that online shopping induces a 3.8, 5.9, 5.7 and 7.4 percent increase in the average budget shares for dairy, fruit, meats and vegetables, respectively. This reallocation of funds comes at the expense of drinks, oils and snacks/sweets with estimates indicating a 5.2, 4.1 and 13.6 percent decrease in the average budget shares, respectively. I further explore how shopping online influences grocery purchases by estimating a formal model of grocery demand. Comparisons of in-store and online price elasticities indicate that households are generally less price sensitive when shopping online. Specifically, I find that own-price (cross-price) elasticities are two (three) times larger in-store than they are online, on average. These insights into consumer purchasing behavior can be utilized to inform policies aimed at improving the nutritional quality of food purchases and can also inform optimal web design and online pricing strategies.