Goods Prices and Availability in Cities
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.
This paper was previously circulated as "Is New Economic Geography Right? Evidence from Price Data." We wish to thank Paul Carrillo, Donald Davis, Jonathan Dingel, Gilles Duranton, Zheli He, Joan Monras, Mine Senses, and Jonathan Vogel for excellent comments. Molly Schnell and Prottoy Aman Akbar provided us with outstanding research assistance. DavidWeinstein would like to thank the NSF (Award 1127493) for generous financial support. Jessie Handbury would like to thank the Research Sponsors’ Program of the Zell-Lurie Real Estate Center at Wharton for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Jessie Handbury & David E. Weinstein, 2015. "Goods Prices and Availability in Cities," Review of Economic Studies, Oxford University Press, vol. 82(1), pages 258-296. citation courtesy of