Price Dispersion In U.S. Manufacturing: Implications For The Aggregation Of Products And Firms
This paper addresses the question of whether products in the U.S. Manufacturing sector sell at a single (common) price, or whether prices vary across producers. Price dispersion is interesting for at least two reasons. First, if output prices vary across producers, standard methods of using industry price deflators lead to errors in measuring real output at the industry, firm, and establishment level which may bias estimates of the production function and productivity growth. Second, price dispersion suggests product heterogeneity which, if consumers do not have identical preferences, could lead to market segmentation and price in excess of marginal cost, thus making the current (competitive) characterization of the Manufacturing sector inappropriate and invalidating many empirical studies. In the course of examining these issues, the paper develops a robust measure of price dispersion as well as new quantitative methods for testing whether observed price differences are the result of differences in product quality. Our results indicate that price dispersion is widespread throughout manufacturing and that for at least one industry, Hydraulic Cement, it is not the result of differences in product quality.
|Date of creation:||Mar 1992|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (301) 763-6460
Fax: (301) 763-5935
Web page: http://www.census.gov/ces
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
- Perloff, Jeffrey M & Salop, Steven, 1985.
"Firm-specific information, product differentiation, and industry equilibrium,"
Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series
qt60v9q47r, Department of Agricultural & Resource Economics, UC Berkeley.
- Perloff, Jeffrey M & Salop, Steven C, 1986. "Firm-Specific Information, Product Differentiation, and Industry Equilibrium," Oxford Economic Papers, Oxford University Press, vol. 38(0), pages 184-202, Suppl. No.
- Carlton, Dennis W, 1979. "Contracts, Price Rigidity, and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 87(5), pages 1034-62, October.
- Lichtenberg, Frank R & Griliches, Zvi, 1989.
"Errors of Measurement in Output Deflators,"
Journal of Business & Economic Statistics,
American Statistical Association, vol. 7(1), pages 1-9, January.
- Salop, Steven & Stiglitz, Joseph E, 1977.
"Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion,"
Review of Economic Studies,
Wiley Blackwell, vol. 44(3), pages 493-510, October.
- Steven Salop & Joseph Stiglitz, 1977. "Bargains and ripoffs: a model of monopolistically competitive price dispersion," Special Studies Papers 94, Board of Governors of the Federal Reserve System (U.S.).
- Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
- Isard, Peter, 1977. "How Far Can We Push the "Law of One Price"?," American Economic Review, American Economic Association, vol. 67(5), pages 942-48, December.
- Dahlby, Bev & West, Douglas S, 1986. "Price Dispersion in an Automobile Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 418-38, April.
- Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-69, July.
- Pratt, John W & Wise, David A & Zeckhauser, Richard, 1979. "Price Differences in Almost Competitive Markets," The Quarterly Journal of Economics, MIT Press, vol. 93(2), pages 189-211, May.
- Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
When requesting a correction, please mention this item's handle: RePEc:cen:wpaper:92-3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fariha Kamal)
If references are entirely missing, you can add them using this form.