Understanding Long-run Price Dispersion

Mario J. Crucini, Hakan Yilmazkuday

NBER Working Paper No. 18811
Issued in February 2013
NBER Program(s):   IFM   ITI

We use a unique panel of retail prices spanning 123 cities in 79 countries from 1990 to 2005, to uncover six novel properties of long-run international price dispersion. First, at the PPP level, virtually all (91.6%) of price dispersion is attributed to service-sector wages, consistent with a dominant role of the retail distribution margin. Second, at the level of individual goods and services, the average contribution of service-sector wages is significantly reduced, one-third as large (31.9%). This reflects the fact that good-specific sources of price dispersion, such as trade costs and good-specific markups, tend to average out across goods. Third, at the LOP level, borders and distance contribute about equally to price dispersion with distance elasticities consistent with the existing trade gravity literature which links trade volumes (rather than relative prices) to borders and distance. Fourth, in the cross-section, price dispersion is rising in the distribution share consistent with the notion that baby-sitting services and haircuts embody local wages to a far greater extent than highly traded manufactured goods. Fifth, we provide the first estimates of distribution margins at the micro-level and show them to be very different across goods and substantial in the aggregate, where they account for about 55% of consumption expenditure. Sixth, these estimates are broadly consistent with more aggregated U.S. NIPA measures currently used in the literature.

download in pdf format
   (980 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w18811

Published: Crucini, Mario J. & Yilmazkuday, Hakan, 2014. "Understanding long-run price dispersion," Journal of Monetary Economics, Elsevier, vol. 66(C), pages 226-240. citation courtesy of

Users who downloaded this paper also downloaded these:
Crucini and Landry w17812 Accounting for Real Exchange Rates Using Micro-data
Crucini and Telmer w17978 Microeconomic Sources of Real Exchange Rate Variability
Burstein and Gopinath w18829 International Prices and Exchange Rates
Anderson, Vesselovsky, and Yotov w18807 Gravity, Scale and Exchange Rates
Crucini, Shintani, and Tsuruga w17815 Noisy Information, Distance and Law of One Price Dynamics Across US Cities
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us