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Goods Prices and Availability in Cities

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  • Jessie Handbury
  • David E. Weinstein

Abstract

This paper uses detailed barcode data on purchase transactions by households in 49 U.S. cities to overcome a large number of problems that have plagued spatial price index measurement. We identify two important sources of bias. Heterogeneity bias arises from comparing different goods in different locations, and variety bias arises from not correcting for the fact that some goods are unavailable in some locations. Eliminating heterogeneity bias causes 97 percent of the variance in the price level of food products across cities to disappear relative to a conventional index. Eliminating both biases reverses the common finding that prices tend to be higher in larger cities. Instead, we find that price level for food products falls with city size.

Suggested Citation

  • Jessie Handbury & David E. Weinstein, 2011. "Goods Prices and Availability in Cities," NBER Working Papers 17067, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17067
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    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies

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