Working Paper: NBER ID: w19877
Authors: Greg Kaplan; Guido Menzio
Abstract: This paper is a study of the shape and structure of the distribution of prices at which an identical good is sold in a given market and time period. We find that the typical price distribution is symmetric and leptokurtic, with a standard deviation between 19% and 36%. Only 10% of the variance of prices is due to variation in the expensiveness of the stores at which a good is sold, while the remaining 90% is due, in approximately equal parts, to differences in the average price of a good across equally expensive stores and to differences in the price of a good across transactions at the same store. We show that the distribution of prices that households pay for the same bundle of goods is approximately Normal, with a standard deviation between 9% and 14%. Half of this dispersion is due to differences in the expensiveness of the stores where households shop, while the other half is mostly due to differences in households' choices of which goods to purchase at which stores. We find that households with fewer employed members pay lower prices, and do so by visiting a larger number of stores, rather than by shopping more frequently.
Keywords: price dispersion; consumer behavior; economic theory
JEL Codes: D2; D4; E3; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| differences in average prices across equally expensive stores (P22) | price dispersion (L11) |
| differences in prices at the same store across transactions (P22) | price dispersion (L11) |
| shopping behavior (D19) | price paid by households (D19) |
| households with fewer employed members visiting a larger number of stores (D19) | price paid by households (D19) |
| differences in store prices (P22) | price dispersion (L11) |
| intertemporal price discrimination and search frictions (D15) | price dispersion (L11) |