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Assessing Long-Run Price Convergence in Retailing

Author

Listed:
  • Borraz, Fernando
  • Zipitría, Leandro

Abstract

We assess price dispersion in retail markets and its sources over time. Using a product-detailed price database, we document a consistent divergence of prices over time in retail markets in Uruguay: price dispersion increased by 3.1% in fifteen years. Next, we analyze microeconomic and macroeconomic factors that correlate with price dispersion. We differentiate the effect in the short-run-i.e., static differences between markets-and long-run effects-if these effects increase or decrease over time. Macroeconomic factors fluctuate over time in their impact on price dispersion. Microeconomic factors, mainly competition between stores and differences in category assortments between stores, have a substantial shortrun correlation and an increased effect over time. When we add interactions to the trend, our measure of price dispersion, we found that price dispersion is twice higher: 6.3%.

Suggested Citation

  • Borraz, Fernando & Zipitría, Leandro, 2024. "Assessing Long-Run Price Convergence in Retailing," GLO Discussion Paper Series 1424, Global Labor Organization (GLO).
    • Handle: RePEc:zbw:glodps:1424
    as

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    References listed on IDEAS

    as
    1. C. Simon Fan & Xiangdong Wei, 2006. "The Law of One Price: Evidence from the Transitional Economy of China," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 682-697, November.
    2. Alfredo Martõn-Oliver & Vicente Salas-Fum¡S & Jesus Saurina, 2007. "A Test of the Law of One Price in Retail Banking," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(8), pages 2021-2040, December.
    3. David C. Parsley & Shang-Jin Wei, 1996. "Convergence to the Law of One Price Without Trade Barriers or Currency Fluctuations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 111(4), pages 1211-1236.
    4. Alberto Cavallo & Robert C. Feenstra & Robert Inklaar, 2023. "Product Variety, the Cost of Living, and Welfare across Countries," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(4), pages 40-66, October.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Price Dispersion; Market Segmentation; Retail Industry;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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