Inflation, Price Dispersion, and Market Structure

38 Pages Posted: 30 Oct 2006 Last revised: 13 May 2014

See all articles by Mustafa O. Caglayan

Mustafa O. Caglayan

University of Sheffield

Alpay Filiztekin

Sabanci University - Faculty of Arts and Social Sciences

Michael T. Rauh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Date Written: 2007

Abstract

In this paper, we use a novel data set containing prices from bazaars, convenience stores, and supermarkets in Istanbul to re-examine the relationship between price dispersion and inflation. Although existing evidence is mixed, we find positive and significant relationships between dispersion, on the one hand, and lagged dispersion and unexpected product-specific inflation on the other. We also find evidence that dispersion is initially decreasing in anticipated aggregate inflation but is eventually increasing. Finally, average price duration and dispersion are lowest in the bazaar. This is intuitive, since menu and search costs should be minimal in that market structure.

Keywords: inflation, market structure, menu cost models, micro panel data, price dispersion

JEL Classification: L1, C23, D40, D83, E31

Suggested Citation

Caglayan, Mustafa O. and Filiztekin, Alpay and Rauh, Michael T., Inflation, Price Dispersion, and Market Structure (2007). Available at SSRN: https://ssrn.com/abstract=940923 or http://dx.doi.org/10.2139/ssrn.940923

Mustafa O. Caglayan

University of Sheffield ( email )

17 Mappin Street
Sheffield, Sheffield S1 4DT
United Kingdom

Alpay Filiztekin (Contact Author)

Sabanci University - Faculty of Arts and Social Sciences ( email )

Orhanli-Tuzla, 34956 Istanbul
Turkey

Michael T. Rauh

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy ( email )

Bloomington, IN 47405
United States

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