Relative Price Dispersion: Evidence and Theory

Greg Kaplan, Guido Menzio, Leena Rudanko () and Nicholas Trachter
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Leena Rudanko: Federal Reserve Bank of Philadelphia

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We use a large dataset on retail pricing to document that a sizeable portion of the cross-sectional variation in the price at which the same good trades in the same period and in the same market is due to the fact that stores that are, on average, equally expensive set persistently different prices for the same good. We refer to this phenomenon as relative price dispersion. We argue that relative price dispersion stems from sellers’ attempts to discriminate between high-valuation buyers who need to make all of their purchases in the same store, and low-valuation buyers who are willing to purchase different items from different stores. We calibrate our theory and show that it is not only consistent with the extent and sources of dispersion in the price that different sellers charge for the same good, but also with the extent and sources of dispersion in the prices that different households pay for the same basket of goods, as well as with the relationship between prices paid and the number of stores visited by different households.

Keywords: Price Dispersion; Equilibrium Product Market Search (search for similar items in EconPapers)
JEL-codes: D40 D83 E31 L11 (search for similar items in EconPapers)
Pages: 73 pages
Date: 2016-01-01, Revised 2016-01-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (21)

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Related works:
Journal Article: Relative Price Dispersion: Evidence and Theory (2019)
Working Paper: Relative price dispersion: evidence and theory (2016)
Working Paper: Relative Price Dispersion: Evidence and Theory (2016)
Working Paper: Relative Price Dispersion: Evidence and Theory (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:16-001

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