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Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data

Author

Listed:
  • Thibault Fally

    (University of California Berkeley)

  • Benjamin Faber

    (UC Berkeley)

Abstract

A growing literature has emphasized the role of Melitz-type firm heterogeneity within sectors in accounting for nominal income inequality. This paper explores the implications of firm heterogeneity for household price indices across the income distribution. Using detailed matched US home and store scanner microdata that allow us to trace the firm size distribution into the consumption baskets of individual households, we present evidence that richer US households source their consumption from on average significantly larger producers of brands within disaggregated product groups compared to poorer US households. We use the microdata to explore alternative explanations, write down a quantitative framework that rationalizes the observed moments, and estimate its parameters to quantify the underlying channels and explore model-based counterfactuals. Our central findings are that larger, more productive firms endogenously sort into catering to the taste of wealthier households, and that this gives rise to asymmetric effects on household price indices. We find that these price index effects significantly amplify observed nominal income inequalities in both the cross-section of households and for changes over time, and that they lead to a significantly more regressive distribution of the gains from international trade.

Suggested Citation

  • Thibault Fally & Benjamin Faber, 2016. "Firm Heterogeneity in Consumption Baskets: Evidence from Home and Store Scanner Data," 2016 Meeting Papers 381, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:381
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    References listed on IDEAS

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    Cited by:

    1. Redding, Stephen J. & Weinstein, David E., 2016. "A unified approach to estimating demand and welfare," LSE Research Online Documents on Economics 67681, London School of Economics and Political Science, LSE Library.
    2. David Hummels & Kwan Yong Lee, 2017. "The Income Elasticity of Import Demand: Micro Evidence and An Application," NBER Working Papers 23338, National Bureau of Economic Research, Inc.
    3. Stephen J. Redding & David E. Weinstein, 2016. "Measuring Aggregate Price Indexes with Demand Shocks: Theory and Evidence for CES Preferences," NBER Working Papers 22479, National Bureau of Economic Research, Inc.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • O51 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - U.S.; Canada

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