Are they always offering the lowest price? An empirical analysis of the persistence of price dispersion in a low inflation environment

Sebnem Bahadir-Lust, Jens-Peter Loy and Christoph R. Weiss
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Sebnem Bahadir-Lust: Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria, Postal: Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria
Jens-Peter Loy: Department of Agricultural Economics, University of Kiel, Kiel, Germany, Postal: Department of Agricultural Economics, University of Kiel, Kiel, Germany
Christoph R. Weiss: Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria, Postal: Department of Economics, Vienna University of Economics and Business Administration, Vienna, Austria

Managerial and Decision Economics, 2007, vol. 28, issue 7, pages 777-788

Abstract: We study the existence of price distributions and the intra-distribution dynamics for 10 food products across 131 retail stores in Germany for a time period of 43 weeks. Based upon Varian's (1980) model of sales, we aim at investigating whether the position of stores within the cross-sectional price distribution is persistent or changes over time (mixed-strategy equilibrium). Our results suggest a substantial degree of price dispersion even after controlling for unobserved store heterogeneity. Despite some intra-distribution dynamics, we find evidence for a persistence of stores in the cross-sectional price distribution over time. Copyright © 2007 John Wiley & Sons, Ltd.

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