The Morphology of Price Dispersion

61 Pages Posted: 31 Jan 2014

See all articles by Greg Kaplan

Greg Kaplan

Princeton University - Department of Economics

Guido Menzio

University of Pennsylvania - Department of Economics; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: January 2014

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.

Suggested Citation

Kaplan, Greg and Menzio, Guido, The Morphology of Price Dispersion (January 2014). NBER Working Paper No. w19877. Available at SSRN: https://ssrn.com/abstract=2388460

Greg Kaplan (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Guido Menzio

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-5170 (Phone)

National Bureau of Economic Research (NBER) ( email )

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Cambridge, MA 02138
United States

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