Working Paper: NBER ID: w21493
Authors: Guido Menzio; Nicholas Trachter
Abstract: We develop a search-theoretic model of the product market that generates price dispersion across and within stores. Buyers differ with respect to their ability to shop around, both at different stores and at different times. The fact that some buyers can shop from only one seller while others can shop from multiple sellers causes price dispersion across stores. The fact that the buyers who can shop from multiple sellers are more likely to be able to shop at inconvenient times (e.g., on Monday morning) causes price dispersion within stores. Specifically, it causes sellers to post different prices for the same good at different times in order to discriminate between different types of buyers.
Keywords: Price Dispersion; Retail Pricing; Buyer Heterogeneity
JEL Codes: D43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| buyers' shopping abilities (D10) | price dispersion across stores (L11) |
| buyers' shopping abilities (D10) | price dispersion within stores (L11) |
| heterogeneity among buyers (L15) | sellers set different prices (L11) |
| temporal differences in buyer availability (D16) | price dispersion within stores (L11) |
| buyers who can shop at inconvenient times (L81) | price discrimination by sellers (D40) |