'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

See all articles by Paul G.J. O'Connell

Paul G.J. O'Connell

FDO Partners, LLC

Shang-Jin Wei

Columbia University - Columbia Business School, Finance; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 2 versions of this paper

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

O'Connell, Paul G.J. and Wei, Shang-Jin, 'The Bigger They are, the Harder They Fall': Retail Price Differences Across U.S. Cities. Journal of International Economics, Available at SSRN: https://ssrn.com/abstract=238784 or http://dx.doi.org/10.2139/ssrn.238784

Paul G.J. O'Connell (Contact Author)

FDO Partners, LLC ( email )

5 Revere Street
Cambridge, MA 02138
United States
617-864-3364 (Phone)
617-864-5548 (Fax)

Shang-Jin Wei

Columbia University - Columbia Business School, Finance ( email )

3022 Broadway
New York, NY 10027
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
141
Abstract Views
1,837
Rank
370,717
PlumX Metrics