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The Unequal Gains from Product Innovations

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  • Xavier Jaravel

    (Harvard)

Abstract

This paper shows that product innovations disproportionately benefit high-income households due to increasing inequality and the endogenous response of supply to market size. Using detailed product-level data in the retail sector in the United States, the paper shows that from 2004 to 2013 annualized quality-adjusted inflation has been 0.65 percentage points lower for high-income households, relative to low-income households. Using national and local changes in market size driven by demographic trends plausibly exogenous to supply factors, the paper then provides causal evidence that a shock to the relative demand for goods (1) affects the direction of product innovations, and (2) leads to a decrease in the relative price of the good for which demand became relatively larger (i.e. the long-term supply curve is downward sloping). A calibration shows that this effect is sufficiently strong to explain most of the observed difference in quality-adjusted inflation rates across the income distribution.

Suggested Citation

  • Xavier Jaravel, 2016. "The Unequal Gains from Product Innovations," 2016 Meeting Papers 437, Society for Economic Dynamics.
  • Handle: RePEc:red:sed016:437
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    References listed on IDEAS

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    1. Martin Beraja & Erik Hurst & Juan Ospina, 2016. "The Aggregate Implications of Regional Business Cycles," NBER Working Papers 21956, National Bureau of Economic Research, Inc.
    2. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    3. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
    4. Munseob Lee & David Argente, 2015. "Cost of Living Inequality during the Great Recession," 2015 Meeting Papers 1372, Society for Economic Dynamics.
    5. Johannes Stroebel & Joseph Vavra, 2014. "House Prices, Local Demand, and Retail Prices," NBER Working Papers 20710, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. repec:eee:inecon:v:108:y:2017:i:c:p:387-412 is not listed on IDEAS
    2. Kaplan, Greg & Schulhofer-Wohl, Sam, 2017. "Inflation at the household level," Journal of Monetary Economics, Elsevier, vol. 91(C), pages 19-38.
    3. Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
    4. 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.
    5. 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.
    6. repec:eee:inecon:v:113:y:2018:i:c:p:20-34 is not listed on IDEAS

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