Price Dispersion in Spatial Perspective: Theory and Evidence

35 Pages Posted: 1 Oct 2008 Last revised: 1 Dec 2010

See all articles by Michael A. Anderson

Michael A. Anderson

Washington and Lee University - Department of Economics

Kurt C. Schaefer

Calvin College

Stephen L. S. Smith

Gordon College - Department of Economics

Date Written: June 1, 2010

Abstract

We develop a simple Hotelling spatial-trade model of price dispersion to examine how distance-related costs affect price dispersion, and we offer some insights on how such costs may best be inferred from price-dispersion measures. Our theoretical model suggests that measures of price dispersion that are not spatially-informed can mislead researchers into concluding that distance-related costs are small even when such costs are the major determinant of price dispersion. In estimates based on price dispersion across U.S. cities of eleven goods, we find that distance-related costs are large and are indeed under-estimated when inferred from standard, non-spatial, price dispersion measures.

Keywords: Spatial Models, Prices, Price Dispersion, Economic Integration

JEL Classification: E31, F36, F41

Suggested Citation

Anderson, Michael A. and Schaefer, Kurt C. and Smith, Stephen L.S., Price Dispersion in Spatial Perspective: Theory and Evidence (June 1, 2010). Available at SSRN: https://ssrn.com/abstract=1275776 or http://dx.doi.org/10.2139/ssrn.1275776

Michael A. Anderson

Washington and Lee University - Department of Economics ( email )

Lexington, VA 24450
United States

Kurt C. Schaefer (Contact Author)

Calvin College ( email )

Grand Rapids, MI 49546
United States
616-526-6298 (Phone)
616-526-8410 (Fax)

Stephen L.S. Smith

Gordon College - Department of Economics ( email )

255 Grapevine Road
Wenham, MA 01984
United States
978-927-2300 x4411 (Phone)
978-524-3704 (Fax)

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