Determining the Causality Between Retail Price and Consumer Demand in a Linear Function when Demand-Shift Variables are Missing but Wholesale Prices are Available

A test procedure is proposed to test for the simultaneous nature of the relationship between price and quantity with respect to consumer demand of fresh products at the level of an individual retail chain. It is argued in the literature that, on the sector level, inverse demand systems in which quantities are exogenous and prices are the dependent variables are better able to describe consumer demand behavior in case of perishable products whose quantities may be treated as fully price inelastic in the short run. Nevertheless, applying our test procedure to six fresh vegetable products sold by a Dutch supermarket chain reveals that consumer demand for fresh products is better described by a simultaneous price-quantity relationship.