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New Evidence on Outlet Substitution Effects in Consumer Price Index Data

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  • John S. Greenlees

    ()
    (U.S. Bureau of Labor Statistics)

  • Robert McClelland

    ()
    (U.S. Bureau of Labor Statistics)

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    Abstract

    In this paper we provide new and detailed evidence on the impact on the U.S. CPI of the appearance and growth of new types of product outlets. Using actual CPI microdata for 2002-2007, we find that the changing mix of outlets had a statistically significantly negative impact on average prices in most of the 14 item food categories we study. In contrast to previous studies of this issue, our approach allows us to examine the effects of changes in outlet mix both across outlet types (such as among large groceries, discount department stores, and warehouse club stores) and within those outlet categories. We also adjust for numerous differences in item characteristics such as brand name, organic certification, and, importantly, package size. In our sample we find that the upward impact on price from increased item quality has offset most of the downward impact of lower-priced outlets. We also provide evidence showing that a simulated “matched-model” approach similar to that used in the CPI yields indexes that differ to a surprising extent from our baseline hedonic indexes, which also hold outlet and item mix constant.

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    File URL: http://www.bls.gov/ore/pdf/ec080070.pdf
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    Bibliographic Info

    Paper provided by U.S. Bureau of Labor Statistics in its series Working Papers with number 421.

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    Length: 34 pages
    Date of creation: Nov 2008
    Date of revision:
    Handle: RePEc:bls:wpaper:ec080070

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    Related research

    Keywords: Outlet Bias; Consumer Price Index;

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    References

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    1. Jerry Hausman & Ephraim Leibtag, 2005. "Consumer Benefits from Increased Competition in Shopping Outlets: Measuring the Effect of Wal-Mart," NBER Working Papers 11809, National Bureau of Economic Research, Inc.
    2. David E. Lebow & Jeremy B. Rudd, 2003. "Measurement Error in the Consumer Price Index: Where Do We Stand?," Journal of Economic Literature, American Economic Association, vol. 41(1), pages 159-201, March.
    3. Matthew D. Shapiro & David W. Wilcox, 1996. "Mismeasurement in the Consumer Price Index: An Evaluation," NBER Working Papers 5590, National Bureau of Economic Research, Inc.
    4. Jerry Hausman & Ephraim Leibtag, 2004. "CPI Bias from Supercenters: Does the BLS Know that Wal-Mart Exists?," NBER Working Papers 10712, National Bureau of Economic Research, Inc.
    5. Alan G. White, 2000. "Outlet types and the Canadian Consumer Price Index," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 488-505, May.
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