Relative Price Dispersion: Evidence and Theory / Greg Kaplan, Guido Menzio, Leena Rudanko, Nicholas Trachter.

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Kaplan, Greg

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w21931.Publication details: Cambridge, Mass. National Bureau of Economic Research 2016.Description: 1 online resource: illustrations (black and white)Subject(s):

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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.

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Working Paper	Biblioteca Digital	Colección NBER	nber w21931 (Browse shelf(Opens below))	Not For Loan

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January 2016.

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.