Understanding Long-Run Price Dispersion

38 Pages Posted: 16 Feb 2013 Last revised: 27 May 2023

See all articles by Mario J. Crucini

Mario J. Crucini

Vanderbilt University - College of Arts and Science - Department of Economics; National Bureau of Economic Research (NBER)

Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 2013

Abstract

We use a unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005, to uncover six novel properties of long-run international price dispersion. First, at the PPP level, virtually all (91.6%) of price dispersion is attributed to service-sector wages, consistent with a dominant role of the retail distribution margin. Second, at the level of individual goods and services, the average contribution of service-sector wages is significantly reduced, one-third as large (31.9%). This reflects the fact that good-specific sources of price dispersion, such as trade costs and good-specific markups, tend to average out across goods. Third, at the LOP level, borders and distance contribute about equally to price dispersion with distance elasticities consistent with the existing trade gravity literature which links trade volumes (rather than relative prices) to borders and distance. Fourth, in the cross-section, price dispersion is rising in the distribution share consistent with the notion that baby-sitting services and haircuts embody local wages to a far greater extent than highly traded manufactured goods. Fifth, we provide the first estimates of distribution margins at the micro-level and show them to be very different across goods and substantial in the aggregate, where they account for about 55% of consumption expenditure. Sixth, these estimates are broadly consistent with more aggregated U.S. NIPA measures currently used in the literature.

Suggested Citation

Crucini, Mario J. and Yilmazkuday, Hakan, Understanding Long-Run Price Dispersion (February 2013). NBER Working Paper No. w18811, Available at SSRN: https://ssrn.com/abstract=2219069

Mario J. Crucini (Contact Author)

Vanderbilt University - College of Arts and Science - Department of Economics ( email )

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Nashville, TN 37235
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HOME PAGE: http://my.vanderbilt.edu/mariocrucini/about-me/

National Bureau of Economic Research (NBER) ( email )

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Hakan Yilmazkuday

Florida International University (FIU) - Department of Economics ( email )

11200 SW 8th Street
Miami, FL 33199
United States

HOME PAGE: http://faculty.fiu.edu/~hyilmazk/

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