Price Heterogeneity and Consumption Inequality

Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-050

20 Pages Posted: 29 Nov 2015

See all articles by Luigi Pisano

Luigi Pisano

Northwestern University - Department of Economics

Andrea Stella

Board of Governors of the Federal Reserve System

Date Written: November 27, 2015

Abstract

Using the Nielsen Consumer Panel, we document the presence of significant price heterogeneity in the United States. Poor households pay lower prices for the same products, mostly because they shop more at discount stores. However, we also find that price heterogeneity has a very small impact on the measurement of consumption inequality. Adjusting nominal household expenditures by imposing that all products have the same price does not appreciably reduce consumption inequality in the United States. Finally, we decompose our inequality measure into two factors, measuring differences in the composition and size of consumption baskets. Variations in composition and quantity are both very important in explaining consumption inequality, and the two factors appear to be highly correlated.

Keywords: Price Heterogeneity, Consumption Inequality

JEL Classification: E32, D20, C30

Suggested Citation

Pisano, Luigi and Stella, Andrea, Price Heterogeneity and Consumption Inequality (November 27, 2015). Kilts Center for Marketing at Chicago Booth – Nielsen Dataset Paper Series 2-050, Available at SSRN: https://ssrn.com/abstract=2696269 or http://dx.doi.org/10.2139/ssrn.2696269

Luigi Pisano

Northwestern University - Department of Economics ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

Andrea Stella (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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