When the price of gas goes up, people switch from premium to regular. They don’t switch from Tropicana to private label orange juice. That’s the very narrow takeaway from Justine Hastings and Jesse Shapiro’s paper on how gas price changes affect other consumer purchases.
The larger takeaway is that consumers use various mental accounts to keep track of different purchases. When the price in one mental account increases, consumers don’t ease the pain of that loss by shifting purchases across a variety of other budgets. Instead they make more dramatic changes in their purchasing choices in the category with the price increase – hence, they switch gas grades. They end up acting as if they are poorer than they really are. That’s where the orange juice comes in.
Does this behavior go beyond the pump? Because some customers held retailer loyalty cards with the grocery store, Hastings and Shapiro were able to track other purchases. They looked at sales of half-gallon cartons of orange juice. They found that while customers were drastically scaling back from premium to regular gasoline, this behavior did not spill over into drastically different orange juice purchases. Gasoline prices affect orange juice purchases in the same way that changes in income do.