Can Price Dispersion Reveal Distance-Related Trade Costs? Evidence from the United States

Michael A. Anderson, Kurt C. Schaefer () and Stephen Smith ()
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Michael A. Anderson: Washington and Lee University, Lexington, VA 24450, USA
Kurt C. Schaefer: Department of Economics, Calvin College, 1740 Knollcrest Circle SE, Grand Rapids, MI 49546, USA

Global Economy Journal (GEJ), 2013, vol. 13, issue 2, 151-173

Abstract: We offer insights on how distance-related trade costs may best be inferred from price-dispersion measures. Using a simple spatial model of price dispersion, we argue that measures of price dispersion that are not spatially informed can mislead researchers into concluding that distance-related costs are small even when such costs are the major determinant of price dispersion. With intra-United States data on eleven goods, we find that distance-related costs are large and are indeed underestimated when inferred from standard, non-spatial, price dispersion measures. Our empirical findings have implications for studies of market integration policies (such as trade liberalization and currency unions) and the significance of economic geography.

Keywords: spatial models; price dispersion; economic integration; trade costs; E31; F36; F41 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (7)

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DOI: 10.1515/GEJ-2012-0026

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