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Market Structure, Inflation, and Price Dispersion

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  • Mustafa Caglayan
  • Alpay Filiztekin
  • Michael T. Rauh

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Abstract

In this paper, we investigate the impact of market structure on the relationship between inflation and price dispersion. We first propose a new empirical model of the relationship between inflation and dispersion with firmer theoretical foundations, and then extend the basic model to incorporate the potential effects of market structure. We estimate the basic and market structure specifications using a unique micro-level data set from Istanbul, which consists of monthly price observations from three different store types: convenience stores, open-air markets, and supermarkets. Our empirical findings support almost all of the basic and market structure predictions.

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Bibliographic Info

Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 04/2.

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Date of creation: Feb 2004
Date of revision: Jun 2004
Handle: RePEc:lec:leecon:04/2

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Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
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Keywords: inflation; market structure; menu cost models; micro panel data; price dispersion;

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  1. Benabou, Roland, 1988. "Search, Price Setting and Inflation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 55(3), pages 353-76, July.
  2. Jaramillo, Carlos Felipe, 1999. "Inflation and Relative Price Variability: Reinstating Parks' Results," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 31(3), pages 375-85, August.
  3. 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, University of Chicago Press, vol. 100(2), pages 349-89, April.
  4. Debelle, Guy & Lamont, Owen, 1997. "Relative Price Variability and Inflation: Evidence from U.S. Cities," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 105(1), pages 132-52, February.
  5. Sheshinski, Eytan & Weiss, Yoram, 1983. "Optimum Pricing Policy under Stochastic Inflation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 50(3), pages 513-29, July.
  6. Dana, J.D., 1991. "Learning in an Equilibrium Search Model," Papers, Stanford - Institute for Thoretical Economics 37, Stanford - Institute for Thoretical Economics.
  7. Caglayan, Mustafa & Filiztekin, Alpay, 2003. "Nonlinear impact of inflation on relative price variability," Economics Letters, Elsevier, Elsevier, vol. 79(2), pages 213-218, May.
  8. Sheshinski, Eytan & Weiss, Yoram, 1977. "Inflation and Costs of Price Adjustment," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 44(2), pages 287-303, June.
  9. Benabou, Roland & Gertner, Robert, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 69-94, January.
  10. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(4), pages 851-58, August.
  11. Parks, Richard W, 1978. "Inflation and Relative Price Variability," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 86(1), pages 79-95, February.
  12. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 58(2), pages 277-97, April.
  13. Van Hoomissen, Theresa, 1988. "Price Dispersion and Inflation: Evidence from Israel," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 96(6), pages 1303-14, December.
  14. Mariano Tommasi, 1992. "Inflation and Relative Prices Evidence from Argentina," UCLA Economics Working Papers, UCLA Department of Economics 661, UCLA Department of Economics.
  15. Benabou, Roland, 1992. "Inflation and Efficiency in Search Markets," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 59(2), pages 299-329, April.
  16. Parsley, David C, 1996. "Inflation and Relative Price Variability in the Short and Long Run: New Evidence from the United States," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 28(3), pages 323-41, August.
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