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Relative Price Dispersion: Evidence and Theory

Author

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  • Greg Kaplan
  • Guido Menzio
  • Leena Rudanko
  • Nicholas Trachter

Abstract

Relative price dispersion refers to persistent differences in the price that different retailers set for one particular good relative to the price they set for other goods. Relative price dispersion accounts for 30 percent of the overall variance of prices at which the same good is sold during the same week and in the same market. Relative price dispersion can be rationalized as the consequence of a pricing strategy used by sellers to discriminate between high-valuation buyers who need to make all of their purchases in one store, and low-valuation buyers who are able to purchase different items in different stores.

Suggested Citation

  • 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.
  • Handle: RePEc:aea:aejmic:v:11:y:2019:i:3:p:68-124
    Note: DOI: 10.1257/mic.20170126
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    More about this item

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L21 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Business Objectives of the Firm
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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