What is the Price of Tea in China? Towards the Relative Cost of Living in Chinese and U.S. Cities

Kilts Center for Marketing Nielsen Data Research Working Paper Series

44 Pages Posted: 1 Mar 2017 Last revised: 3 Mar 2017

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Mingzhi Xu

Peking University - Institute of New Structural Economics

Alexis Antoniades

Georgetown University School of Foreign Service in Qatar

Multiple version iconThere are 2 versions of this paper

Date Written: February 28, 2017

Abstract

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: exact price index, variety, scanner data, pro-competitive

JEL Classification: D12, E01, L13

Suggested Citation

Feenstra, Robert C. and Xu, Mingzhi and Antoniades, Alexis, What is the Price of Tea in China? Towards the Relative Cost of Living in Chinese and U.S. Cities (February 28, 2017). Kilts Center for Marketing Nielsen Data Research Working Paper Series. Available at SSRN: https://ssrn.com/abstract=2925530 or http://dx.doi.org/10.2139/ssrn.2925530

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
United States
916-752-9240 (Phone)
916-752-9382 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Mingzhi Xu

Peking University - Institute of New Structural Economics ( email )

Bejing, AK Bejing
China

Alexis Antoniades

Georgetown University School of Foreign Service in Qatar ( email )

Education City
Al Huqoul St
Doha
Qatar

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