Working Paper: NBER ID: w23161
Authors: Robert C. Feenstra; Mingzhi Xu; Alexis Antoniades
Abstract: We examine the price and variety of products at the barcode level in cities within China and the United States. In both countries, there is a greater variety of products in larger cities. But in China, unlike the United States, the prices of products tend to be lower in larger cities. We attribute the lower prices to a pro-competitive effect, whereby large cities attract more firms which leads to lower markups and prices. Combining the effect of greater variety and lower prices, it follows that the cost of living for grocery-store products in China is lower in larger cities. We further compare the cost-of-living indexes for particular product categories between China and the United States. In product categories with a significant presence of U.S. brands in the Chinese market, the availability of additional Chinese brands leads to greater variety than in the United States, and therefore lower Chinese price indexes for that reason. In product categories with much less presence of U.S. brands in the Chinese market, however, the observed prices differences between the countries (usually lower prices in China) are partially or fully offset by the variety differences (less variety in China), so that the cost of living in China is not as low as the price differences suggest, especially in smaller cities.
Keywords: cost of living; product variety; China; United States; price comparisons
JEL Codes: E01; F11; L1
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| larger cities (R12) | greater variety of products (L15) |
| larger cities (R12) | lower prices (P22) |
| lower prices + greater variety (D49) | lower cost of living (R29) |
| greater presence of U.S. brands in China (F61) | greater variety and lower price indexes (P22) |
| less presence of U.S. brands (F69) | lower variety in China (P22) |
| city size (R12) | lower prices (P22) |