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Local retail prices, product varieties and neighborhood change

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  • Borraz, Fernando
  • Carozzi, Felipe
  • Gonzalez Pampillon, Nicolas
  • Zipitria, Leandro

Abstract

We study how local grocery prices within a city are affected by changes in housing markets. Our empirical strategy is based on an exogenous shift in the spatial distribution of construction activity induced by a large-scale, place-based tax exemption in the city of Montevideo. We provide instrumental variable estimates showing that the relative price of grocery goods decreases in areas within the city that experience more residential development: the estimated elasticity of grocery prices to newly-built residential space lies between -3 and -4%. Using a multi-product model of imperfect competition, we show that this negative effect can result from either an expansion in product varieties or firm entry. We report evidence supporting the varieties channel, with new residential development causing an increase in varieties of groceries available locally, and evidence of changes in the composition of stores.

Suggested Citation

  • Borraz, Fernando & Carozzi, Felipe & Gonzalez Pampillon, Nicolas & Zipitria, Leandro, 2022. "Local retail prices, product varieties and neighborhood change," LSE Research Online Documents on Economics 117749, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:117749
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    File URL: http://eprints.lse.ac.uk/117749/
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    References listed on IDEAS

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    1. Fernando Borraz & Alberto Cavallo & Roberto Rigobon & Leandro Zipitria, 2016. "Distance and Political Boundaries: Estimating Border Effects under Inequality Constraints," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 21(1), pages 3-35, January.
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    Cited by:

    1. Bhardwaj,Abhishek & Ghose,Devaki & Mukherjee,Saptarshi & Singh,Manpreet, 2022. "Million Dollar Plants and Retail Prices," Policy Research Working Paper Series 9995, The World Bank.

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    More about this item

    Keywords

    retail prices; housing stock; neighborhood change;
    All these keywords.

    JEL classification:

    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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