You run a medical marijuana company that has stores in Rochester and Manhattan.

Question

You run a medical marijuana company that has stores in Rochester and Manhattan. On a recent visit to Manhattan, you discovered that for the past 3 months the store manager has mistakenly priced your top-of-the-line product at $5 less per bag than she should have (the correct higher price was being charged in Rochester). After completing this class, you are now curious as to whether this lower price significantly increased the sales of your top-of-the-line product.

You have weekly sales data for the past 3 months from each of the 2 stores. Explain why a simple comparison of sales at the 2 stores provides an inaccurate estimate of the impact of the price difference on sales.

Explanation / Answer

In order to find out the effect of price reduction it is important to have data of the firm of different time periods. Because comparison can only be don't between similar units. The method adopted in question will give wrong answer because data of two different shops of different areas are taken. It is wrong because the two shops are not same. They can be different on terms of size, consumer footfall, and other location factors affecting the demand, etc

Thus weekly sales data of three months from each store will give an inaccurate estimate of the impact of price differentiation.

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