Price Dispersion in Spatial Perspective: Theory and Evidence
35 Pages Posted: 1 Oct 2008 Last revised: 1 Dec 2010
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: Suggested Citation
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