IDEAS home Printed from https://ideas.repec.org/p/ags/uwfswp/201549.html
   My bibliography  Save this paper

Price Dispersion, Search, and Market Power

Author

Listed:
  • Dhar, Tirtha
  • Stiegert, Kyle W.
  • Gould, Brian W.

Abstract

The purpose of the research presented in this study is to examine the relationship of price dispersion to search costs, store choice, and market power in the food-retailing sector. The study used consumer level demographic information and brand level fluid milk consumption data from 33 U.S. metropolitan areas. Overall, the study found strong evidence of search cost related strategic firm and consumer behavior. Our results show that purchase frequency has a negative and significant relationship with price dispersions and with measures of price cost margins. We also find that the price of fluid milk was an important factor in explaining whether or not consumers return to the same store. Demographic factors such as income and race were important in explaining price dispersions, which suggest different willingness to search across population sub-groups.

Suggested Citation

  • Dhar, Tirtha & Stiegert, Kyle W. & Gould, Brian W., 2002. "Price Dispersion, Search, and Market Power," Working Papers 201549, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    • Handle: RePEc:ags:uwfswp:201549
    DOI: 10.22004/ag.econ.201549
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/201549/files/wp2002-8.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.201549?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. Rafael Rob, 1985. "Equilibrium Price Distributions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 52(3), pages 487-504.
    3. Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-493, June.
    4. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 305-324, November.
    5. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    6. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    7. Quah, Danny, 1993. "Empirical cross-section dynamics in economic growth," European Economic Review, Elsevier, vol. 37(2-3), pages 426-434, April.
    8. Pinelopi Koujianou Goldberg & Frank Verboven, 2001. "The Evolution of Price Dispersion in the European Car Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 68(4), pages 811-848.
    9. Lach, Saul & Tsiddon, Daniel, 1992. "The Behavior of Prices and Inflation: An Empirical Analysis of Disaggregated Price Data," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 349-389, April.
    10. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August.
    11. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294, National Bureau of Economic Research, Inc.
    12. Louis L. Wilde & Alan Schwartz, 1979. "Equilibrium Comparison Shopping," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 46(3), pages 543-553.
    13. Ronald W. Cotterill, 1999. "Continuing Concentration in the U.S.: Strategic Challenges to an Unstable Status Quo," Food Marketing Policy Center Research Reports 048, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
    14. Dhar, Tirtha Pratim & Ray, Subhash, 2002. "Understanding Dynamic Retail Competition Through the Analysis of Strategic Price Response Using Time Series Techniques," Working Papers 201550, University of Wisconsin-Madison, Department of Agricultural and Applied Economics, Food System Research Group.
    15. Gerard R. Butters, 1977. "Equilibrium Distributions of Sales and Advertising Prices," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 44(3), pages 465-491.
    16. Rajiv Lal & Carmen Matutes, 1989. "Price Competition in Multimarket Duopolies," RAND Journal of Economics, The RAND Corporation, vol. 20(4), pages 516-537, Winter.
    17. McAfee R. Preston, 1995. "Multiproduct Equilibrium Price Dispersion," Journal of Economic Theory, Elsevier, vol. 67(1), pages 83-105, October.
    18. John McMillan & Peter B. Morgan, 1988. "Price Dispersion, Price Flexibility, and Repeated Purchasing," Canadian Journal of Economics, Canadian Economics Association, vol. 21(4), pages 883-902, November.
    19. J. Rupert Gatti, 2000. "Equilibrium Price Dispersion with Sequential Search," Econometric Society World Congress 2000 Contributed Papers 1368, Econometric Society.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Saul Lach, 2002. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 433-444, August.
    2. Joaquín Alegre & Maria Sard, 2006. "Tour operators' price strategie in the Balearic Islands," DEA Working Papers 19, Universitat de les Illes Balears, Departament d'Economía Aplicada.
    3. Greg Kaplan & Guido Menzio & Leena Rudanko & Nicholas Trachter, 2019. "Relative Price Dispersion: Evidence and Theory," American Economic Journal: Microeconomics, American Economic Association, vol. 11(3), pages 68-124, August.
    4. Burdett, Kenneth, 1989. "Search Market Models: A Survey," Working Paper Series 234, Research Institute of Industrial Economics.
    5. Rauh, Michael T., 2009. "Strategic complementarities and search market equilibrium," Games and Economic Behavior, Elsevier, vol. 66(2), pages 959-978, July.
    6. Alfredo Martín-Oliver & Vicente Salas-Fumás & Jesús Saurina, 2005. "Interest rate dispersion in deposit and loan markets," Working Papers 0506, Banco de España.
    7. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    8. Chudik, Alexander, 2012. "A simple model of price dispersion," Economics Letters, Elsevier, vol. 117(1), pages 344-347.
    9. ANDERSON, Simon & de PALMA, André, 2003. "Price dispersion," LIDAM Discussion Papers CORE 2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    10. Menzio, Guido & Trachter, Nicholas, 2015. "Equilibrium price dispersion with sequential search," Journal of Economic Theory, Elsevier, vol. 160(C), pages 188-215.
    11. José Tudón, 2021. "Can price dispersion be supported solely by information frictions?," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 9(1), pages 75-90, April.
    12. Rauh, Michael T., 1997. "A Model of Temporary Search Market Equilibrium," Journal of Economic Theory, Elsevier, vol. 77(1), pages 128-153, November.
    13. Xing Zhang & Tat Y. Chan & Ying Xie, 2018. "Price Search and Periodic Price Discounts," Management Science, INFORMS, vol. 64(2), pages 495-510, February.
    14. Simon P. Anderson & Régis Renault & Claude Jessua, 1996. "Produits différenciés et information imparfaite des consommateurs," Revue Économique, Programme National Persée, vol. 47(3), pages 425-435.
    15. Leung, Charles Ka Yui & Zhang, Jun, 2011. "“Fire Sales” in housing market: is the house-searching process similar to a theme park visit?," MPRA Paper 29127, University Library of Munich, Germany.
    16. repec:smu:ecowpa:1301 is not listed on IDEAS
    17. Anania, Giovanni & Nistico, Rosanna, 2012. "Price dispersion, search costs and consumers and sellers heterogeneity in retail food markets," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 125594, International Association of Agricultural Economists.
    18. Ed Hopkins, "undated". "Price Dispersion: An Evolutionary Approach," Discussion Papers 1996-3, Edinburgh School of Economics, University of Edinburgh.
    19. Simhon Avi & Fishman Arthur, 2011. "Income Distribution, Search and Market Efficiency," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-23, January.
    20. Sergey MALAKHOV, 2016. "Law of One Price and Optimal Consumption-Leisure Choice Under Price Dispersion," Expert Journal of Economics, Sprint Investify, vol. 4(1), pages 1-8.
    21. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:uwfswp:201549. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/dauwius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.