Abstract
We analyze the behavior of inflation in the era of fast pace information thanks to technological advances, especially internet. Owing to readily available information, prices/inflation should quickly converge under perfect competition. To this end, we explore the possibility of price convergence in regional inflation in the USA including the permanency of such a phenomenon if observed, a concern for monetary policy makers. Empirically, we analyze standard deviation of regional inflation with special attention to technology. We show that standard deviation of inflation is not constant over time, but not necessarily ever-declining. Technology seems to help reduce price dispersion across regions.
Highlights
Convergence in prices across different regions of the same country is a conceptually plausible idea, especially if markets are perfectly competitive, barring any other impediments against perfect competition
Even if we find the so-called Amazon effect on prices, the question is about its permanency; that is, will this impact disappear over time, as the Amazon effect dies out just the same way as the aforementioned Walmart effect has stabilized? Putting it differently, should there be a concern for the monetary policy maker with respect to the Amazon effect? Both the practitioners and academics already warn that policy makers should not ignore the role of technology companies such as Amazon, Google, and Uber in forcing prices down (El-Arian, 2019)
We explore the possibility of a price convergence in the form of a reduction in regional inflation in the United States in the sense of the purchasing power parity, which is the extended version of the law of one price
Summary
Convergence in prices (or inflation) across different regions of the same country is a conceptually plausible idea, especially if markets are perfectly competitive, barring any other impediments against perfect competition Under these circumstances, there must be a downward pressure on prices so that economic profits decline to zero. According to Microdinc (n.d.), a web-technology provider, “92 percent of shoppers prefer stores with mobile platforms.” Lampertius (2019) provides a discussion on similar lines This effect results in the disappearance (or decline) of price dispersions across places/time. We measure price dispersion as the standard deviation of regional inflation in the US after accounting for the impact of technology, in particular, the internet.
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