Can information about a price cap change the way we shop?

When evaluating the effects of price caps, one question is usually asked first: did prices fall? But a change in price alone does not tell us what happened to sales and revenues at the same time.

In a new paper published in the Proceedings of the Faculty of Economics & Business, University of Zagreb, Ružica Brečić, Zrinka Lukač and Maja Bogović show why this is not enough. Using Croatian retail data, they analysed how government-imposed price caps affected not only price levels, but also sales volumes and revenues across several categories of staple food products.

The results show that the effects differed across categories. Flour recorded the largest decline in prices, but also the strongest increase in sales volumes. Changes in milk were considerably smaller, while sunflower oil became cheaper without a comparable increase in sales.

Why did the same measure not have the same effect across all products? Because consumers do not respond in the same way to price changes across different products. Their response depends, among other things, on how often a product is purchased, how easily it can be stored, and how important it is in overall household consumption.

The main conclusion is simple: a lower price does not necessarily mean higher sales, just as higher sales volumes do not always compensate for a reduction in the price of a product. To assess the actual effects of price-cap measures, prices, sales volumes and revenues need to be considered together.

This approach provides a more complete assessment of the effects of food price regulation and shows why both policymakers and retailers should look beyond price alone when designing and evaluating such measures.

The paper was developed within the GAMEHEALTH project, funded by the European Union – NextGenerationEU.

Curious about the full analysis? Read the complete paper here.