How much should cities plan for the storm of the century?

Monopolistic Competition: Weather Analytics

by Elaine Schwartz    •    Aug 16, 2013    •    376 Views    •    TIME TO READ: 1 minute

Research indicates that there is an inverse relationship between the quantity of frozen yogurt New Yorkers demand and wind speed. The higher the wind, the less yogurt they want. By contrast, they buy significantly more frozen yogurt on hot and on sunny days.

Also…

  • During the summer in Chicago, beer sales substantially rise after 3 consecutive days of below average temperatures.
  • During the fall, people in the Midwest and South want more bottled water when humidity is below average.
  • During the winter in Boston, consumers eat more heathy snacks if the temperature is below average while precipitation is above average.

Called weather analytics, temperature, cloud cover, wind, humidity and other climate characteristics appear to influence what we buy and when. Knowing more weather data, retailers can adjust their marketing approach to current conditions. Someone who cares about the impact of humidity on her hair might respond to a smartphone ad that accompanies a humid weather forecast. A store selling crafts knows rainy weather and even a rainy weather prediction increase their sales. In addition, citing how mood affects buying behavior, academic researchers have connected weather to mood to consumer purchases.

As economists, we can travel from the weather to competitive market structures. In the weather analytics studies that I read, firms engaged in monopolistic competition were most frequently cited. The reason could be that firms in monopolistically competitive markets have a dual dimension. Yes, they compete against many other firms. However, because they can distinguish themselves with something unique, weather data provides that marginal edge.

Sources and resources: The Wall Street Journal had a fascinating article (pay wall) on weather analytics that was complemented by this academic study from the University of Alberta. My frozen yogurt data was from a marketing firm.

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