Existence and Persistence of Price Dispersion: an Empirical Analysis
Using a unique data set on store-level monthly prices of four homogenous products sold in Israel, I study the existence and characteristics of the dispersion of prices across stores, as well as its persistence over time. I find that price dispersion prevails even after controlling for observed and unobserved product heterogeneity. Moreover, intra-distribution mobility is significant: stores move up and down the cross-sectional price distribution. Thus, consumers cannot learn about stores that consistently post low prices. As a consequence, price dispersion does not disappear and persists over time as predicted by Varian's (1980) model of sales.
Published: Lach, Saul. "Existence And Persistence Of Price Dispersion: An Empirical Analysis," Review of Economics and Statistics, 2002, v84(3,Aug), 433-444.