Consumers’ Preference for Downsizing Over the Package Price Increase

In this study, I utilize package downsizing in the South Korean retail milk market and examine the extent to which consumers' response to package downsizing differs from their response to a package price increase. I find that increasing the unit price through an increase in the package price rather than package downsizing would have decreased demand by 34%. Additionally, the gap between the amounts of consumption under the two different responses is persistent over the 14 months. Previous studies attributed consumers' preference for downsizing over package price increase to search friction and cognitive biases. Therefore, I develop a simple model that explains why fully informed consumers would be less sensitive to downsizing than package price increases