'The Bigger They are, the Harder They Fall': Retail Price Differences Across U.S. Cities
Journal of International Economics
37 Pages Posted: 3 Nov 2000
There are 2 versions of this paper
'The Bigger They are, the Harder They Fall': Retail Price Differences Across U.S. Cities
'The Bigger They are, the Harder They Fall': Retail Price Differences Across U.S. Cities
Abstract
This paper examines the evidence for nonlinear price behavior in retail goods prices across U.S. cities. First, a simple continuous-time model is used to explore the types of price behavior that can arise in the presence of market frictions. These frictions could be interpreted as transport costs, but we prefer a broader interpretation in which the frictions operate at the level of technology and preferences. Second, we gather price data from 24 U.S. cities on individual goods like orange juice and toothpaste. The empirical analysis reveals that price discrepancies between U.S. cities are stationary and nonlinearly mean-reverting to price parity.
JEL Classification: F31, C32
Suggested Citation: Suggested Citation
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