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  3. American Economic Journal: Economic Policy
  4. May 2021
  5. Retail Prices in a City

Retail Prices in a City

  • Alon Eizenberg
  • Saul Lach
  • Merav Oren-Yiftach
American Economic Journal: Economic Policy
vol. 13, no. 2, May 2021
(pp. 175-206)
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Abstract

This study examines grocery price differentials across neighborhoods in a large metropolitan area (the city of Jerusalem, Israel). Important variation in access to affordable grocery shopping is documented using CPI data on prices and neighborhood-level credit card expenditure data. Residents of peripheral, nonaffluent neighborhoods are charged some of the highest prices in the city and yet display a low tendency to shop outside their neighborhood. In contrast, residents of affluent, centrally located neighborhoods often benefit from lower grocery prices charged in their own neighborhood while also displaying a high propensity to shop at the hard discount grocers located in the city's commercial districts. The role of spatial frictions in shaping these patterns is studied within a structural model where households determine their shopping destination and retailers choose prices. The estimated model implies strong spatial segmentation in households' demand. Counterfactual analyses reveal that alleviating spatial frictions results in considerable benefits to the average resident of the peripheral neighborhoods. At the same time, it barely affects the equilibrium prices charged across the city, and so it does little to benefit households with limited mobility (e.g., the elderly).

Citation

Eizenberg, Alon, Saul Lach, and Merav Oren-Yiftach. 2021. "Retail Prices in a City." American Economic Journal: Economic Policy, 13 (2): 175-206. DOI: 10.1257/pol.20180218

Additional Materials

JEL Classification

  • L11 Production, Pricing, and Market Structure; Size Distribution of Firms
  • L81 Retail and Wholesale Trade; e-Commerce
  • R22 Urban, Rural, Regional, Real Estate, and Transportation Economics: Other Demand
  • R23 Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics
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