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Can Price Dispersion Reveal Distance-Related Trade Costs? Evidence from the United States

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  • Anderson Michael A.

    () (Washington and Lee University, Lexington, VA 24450, USA)

  • Schaefer Kurt C.

    () (Department of Economics, Calvin College, 1740 Knollcrest Circle SE, Grand Rapids, MI 49546, USA)

  • Smith Stephen L. S.

    () (Gordon College, Wenham, MA 01984, USA)

Abstract

We offer insights on how distance-related trade costs may best be inferred from price-dispersion measures. Using a simple spatial model of price dispersion, we argue that measures of price dispersion that are not spatially informed can mislead researchers into concluding that distance-related costs are small even when such costs are the major determinant of price dispersion. With intra-United States data on eleven goods, we find that distance-related costs are large and are indeed underestimated when inferred from standard, non-spatial, price dispersion measures. Our empirical findings have implications for studies of market integration policies (such as trade liberalization and currency unions) and the significance of economic geography.

Suggested Citation

  • Anderson Michael A. & Schaefer Kurt C. & Smith Stephen L. S., 2013. "Can Price Dispersion Reveal Distance-Related Trade Costs? Evidence from the United States," Global Economy Journal, De Gruyter, vol. 13(2), pages 151-173, June.
  • Handle: RePEc:bpj:glecon:v:13:y:2013:i:2:p:151-173:n:2
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    References listed on IDEAS

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    Cited by:

    1. Neil Balchin & Lawrence Edwards & Asha Sundaram, 2015. "A Disaggregated Analysis of Product Price Integration in the Southern African Development Community," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 24(3), pages 390-415.
    2. A. Nchake Mamello & Edwards Lawrence & N. Kaya Tresor, 2017. "Working Paper 272 - Price effects of borders between Lesotho and South Africa," Working Paper Series 2389, African Development Bank.
    3. repec:eee:reveco:v:54:y:2018:i:c:p:154-164 is not listed on IDEAS
    4. repec:oup:jafrec:v:28:y:2019:i:1:p:70-88. is not listed on IDEAS

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