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Price Dispersion, Search Costs And Consumers And Sellers Heterogeneity In Retail Food Markets

Author

Listed:
  • Giovanni Anania

    ()

  • Rosanna Nisticò

    () (Dipartimento di Economia e Statistica, Università della Calabria)

Abstract

Price dispersion, i.e. a homogeneous product sold at different prices by different sellers, is among the most replicated findings in empirical economics. The paper assesses the extent and determinants of spatial price dispersion for 14 perfectly homogeneous food products in more than 400 retailers in a market characterized by the persistence of a large number of relatively small traditional food stores, side by side large supermarkets. The extent of observed price dispersion is quite high, suggesting that monopolistic competition prevails as a result of the heterogeneity of services offered. When prices in an urban area (where the spatial concentration of sellers is much higher and consumer search costs significantly lower) have been compared with those in smaller towns and rural areas, differences in search costs and the potentially higher degree of competition did not yield lower prices; quite the contrary, they were, on average, higher for 11 of the 14 products considered. Supermarkets proved to be often, but not always, less expensive than traditional retailers, although average savings from food shopping at supermarkets were extremely low. Finally, the results of the study suggest that sellers behave differently in their pricing strategies; these differences emerge both at the firm level, and for supermarkets within the same chain. The fact that products considered were homogeneous, purchases frequently repeated, the number of sellers large, and search costs relatively low, did not suffice to keep price dispersion low. From the results presented in the paper, it is clear that what is important in explaining price dispersion is the contemporaneous heterogeneity of retailers (in terms of services) and consumers (in terms of search and shopping preferences), which makes it possible for a monopolistic competition structure of the market to emerge and for small traditional food retailers to remain in business.

Suggested Citation

  • Giovanni Anania & Rosanna Nisticò, 2011. "Price Dispersion, Search Costs And Consumers And Sellers Heterogeneity In Retail Food Markets," Working Papers 201105, Università della Calabria, Dipartimento di Economia, Statistica e Finanza "Giovanni Anania" - DESF.
  • Handle: RePEc:clb:wpaper:201105
    as

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    File URL: http://www.ecostat.unical.it/RePEc/WorkingPapers/WP05_2011.pdf
    File Function: First version, 2011-05
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Price dispersion; Retail pricing; Food markets;

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

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