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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
    DOI: 10.1515/gej-2012-0026
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    4. Yazgan, M. Ege & Yilmazkuday, Hakan, 2011. "Price-level convergence: New evidence from U.S. cities," Economics Letters, Elsevier, vol. 110(2), pages 76-78, February.
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    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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