Price Dispersion Research Articles

Land market distortions and aggregate agricultural productivity: Evidence from Guatemala

Farm size and land allocation are important factors in explaining lagging agricultural productivity in developing countries. This paper examines the effect of land market imperfections on land allocation across farmers and aggregate agricultural productivity. We develop a theoretical framework to model the optimal size distribution of farms and assess to what extent market imperfections can explain non-optimal land allocation and output inefficiency. We measure these distortions for the case of Guatemala using agricultural census microdata. We find that due to land market imperfections aggregate output is 19% below its efficient level for both maize and beans and 31% below for coffee, which are three major crops produced nationwide. We also observe that areas with higher distortions show higher land price dispersion and less active rental markets. The degree of land market distortions across areas co-variate to some extent with road accessibility, ethnicity, and education.

Price Dispersion and the Costs of Inflation

AbstractThe new Keynesian literature typically makes the assumption that firms always have to satisfy demand, which is at odds with profit‐maximizing behavior under Calvo pricing when long‐run inflation is positive. Our model, which relaxes this assumption, predicts that inflation causes a substantially smaller loss in effective aggregate productivity compared to a benchmark model without the possibility of rationing. Moreover, under positive inflation, firms choose smaller markups over marginal costs in our model than in the benchmark model. As a result, our analysis suggests that the standard new Keynesian model may exaggerate the welfare costs of inflation.

Income inequality and trade of ‘Made in China’

This paper presents a theory and empirical evidence on how destination countries’ income inequality affects the export price and volume of Chinese products. We provide a simple model to illustrate exporters’ market dynamics and product-quality specialization induced by the change in the destination country's income distribution. Under the nonhomothetic preference assumption, the model predicts that higher income inequality makes Chinese exporters who produce low-quality products concentrate on serving low-income consumers, which accounts for a large proportion of the population. Exploiting highly disaggregated customs transaction records of Chinese exporters, we provide empirical evidence consistent with the model predictions: (i) A rise in income inequality leads to a lower export price, (ii) induces entry of new exporters, and (iii) leads to higher export value and export price dispersion.

Price competition online: Platforms versus branded websites

AbstractThe focus of this theoretical study is price competition when some firms operate their own branded website while others sell their products through an online platform, such as Amazon Marketplace. On one hand, selling through Amazon expands a firm's reach to more customers, but on the other hand, starting a website can help the firm to increase the perceived value of its product, that is, to build brand equity. In the short run the composition of firms is fixed, whereas in the long run each firm chooses between Amazon and its own website. I derive the equilibrium prices and profits, analyze the firms' behavior in the long run, and compare the equilibrium outcome with the social optimum. Comparative statics analysis reveals some interesting results. For example, I find that the number of firms that choose Amazon may go down in response to an increase in the total number of firms. A pure‐strategy Nash equilibrium may not exist; I show that price dispersion among firms of the same type is more likely in less concentrated markets and/or when the increase in the perceived value of the product is relatively small.

A three-step procedure to investigate the convergence of electricity and natural gas prices in the European Union

The paper introduces an innovative three-step approach to simultaneously investigate the price dispersion in retail electricity and natural gas markets for both domestic and industrial consumers over time and across EU countries. In the first step, a multilateral Country-Product-Dummy price index is applied to estimate the purchasing power parity (PPP) of the EU energy market. In the second step, the PPP values are then used to cluster the EU countries by means of a hierarchical cluster analysis based on the Ward method. Finally, in the third step, the Hodrick-Prescott filter is employed to estimate the PPP trends and to investigate different notions of convergence, within and between the identified clusters. We show that different EU countries can be classified into four clusters which are characterized by CPD indexes and PPPs below, slightly below, slightly above and above the average CPD/PPP series, respectively. Taken together, the results from our analysis indicate that the electricity and natural gas prices across the EU-28 member states have not converged, despite significant efforts in market integration and regulatory harmonization. The evidence of a slow beta-convergence is not associated with sigma- and club convergence both at intra- and inter-cluster level. Among country-specific factors, the results suggest that the adoption of national energy and climate policies could have played a major role in explaining the difficulties of the convergence process at a retail price level.

Airline cooperation effects on airfare distribution: An auction-model-based approach

Airline alliances have a long history yet there is no academic consensus on how they affect price levels and their impact on price dispersion has not yet been studied. We address this question using a novel methodology motivated by the service homogenization and increased price competition in this industry in the recent years. Establishing an equivalence between the online sales process and a reverse English auction, we use methods from auction econometrics to work in a new way with the standard industry data set: using individual ticket sales where only aggregated prices have been used in the past. Applicable to other industries where sellers compete in prices, this approach allows us to reconsider the effect of airline alliances on the distribution of airfares in the US domestic market. We find lower price mean and dispersion in markets where airlines belong to an alliance as a result of the lower variability of costs. The methodology we apply here can be used to study any distribution of individualized prices, which are now prevalent since the advent of the digital economy.

Volatility and Dispersion of Hourly Electricity Contracts on the German Continuous Intraday Market

Intraday electricity trading on the continuous intraday market of EPEX SPOT is particularly well suited for the rebalancing of energy production. We analyzed the volatility and dispersion of individual hourly contracts, taking into account the particularities of the market, due to which the standard volatility measure from financial time series cannot be applied. We used and analyzed five measures for price fluctuations, which turned out to be similarly well suited for electricity contracts, with small differences. We then identified fundamental drivers of price fluctuations: the relative share of wind in the overall mix increased dispersion. In addition, price dispersion was positively correlated with the traded volume as well as the absolute difference between the day-ahead auction price and the volume-weighted intraday price. We furthermore analyzed the timely structure of price fluctuations to identify forecast indicators for a contract’s peak trading hour before maturity, finding that trading-related variables are more important to forecast price fluctuations than fundamental factors. With lagged realizations and additional external drivers, forecast regressions reached an adjusted R2 of 0.479 for volatility and around 0.3 for the dispersion measures.

Electricity Markets Instability: Causes of Price Dispersion

The creation of a single competitive EU energy market is aimed at establishing a fair price in the integrated market space. However, electricity markets in European countries remain rather fragmented, and the marginal pricing method, which is the basic one used in the market, conditions a persistent price dispersion in the search for market equilibrium. This study examines the dispersion of electricity prices in 40 bidding zones in 26 European countries by means of quartile analysis. The geographic orientation of the markets, direction of electricity flows, and structure of electricity generation are considered as the causes of this dispersion. In the study, the geographical boundaries of the electricity markets are determined using the methods of correlation analysis of prices and transitive closure of commercial electricity flows. This makes it possible to single out highly integrated, moderately integrated, poorly integrated, and non-integrated markets. Using cluster analysis, electricity markets are classified according to the structure of electricity generation and direction of flows, with the identification of five clusters based on the dominant type of generation and three clusters based on the dominant direction of electricity supply. For each factor under investigation, the intragroup price dispersion is established. The results of the study have allowed to build a three-dimensional matrix that provides for determining the directions of changes in electricity prices when moving between its quadrants.

Aggregation Bias in Estimating Log‐Log Demand Function

In this study, we consider the problem of estimating demand functions using historical sales data. In particular, we study how using aggregate data may result in bias in such estimations. We consider a log‐log demand model, and two ways of how the price in the aggregate data is calculated, simple average price or weighted average price. We study whether there exists estimation bias in each of the two cases as well as the direction of the bias. We show that in general, the correlation between “average price” and “price dispersion” in each time period has an effect on the direction of the bias. We then propose ways to reduce the aggregation bias. We prove that when the price processes satisfy certain mild conditions, our debiasing procedure can recover the true parameters asymptotically. We also obtain statistical properties of the debiased parameters. We perform numerical experiments on both synthetic and real data to demonstrate the effectiveness of our approach. The numerical results show that our proposed bias mitigation approach has the potential of effectively reducing the bias in both synthetic and practical settings.

Why do firms import via merchants in entrepôt countries rather than directly from the source?

AbstractUsing Norwegian import‐transactions data, this article studies which factors are associated with the probability of importing indirectly via third countries (entrepôts), rather than directly from the source. Source country characteristics—especially high trade barriers and unfavorable geographical locations—are important when time‐invariant unobserved heterogeneity is not controlled for. When controlling for this, however, firm‐ and product‐level characteristics stand out as the main drivers. Smaller and less productive firms more often import via entrepôts, especially when importing product‐source combinations that are relatively unimportant in their total imports and when importing products with low price dispersion and high value‐to‐weight ratios.

The relationship between trade policies and macroeconomic adjustments in the Russian cheese market integration

Many different events happened in 2014 that affected Russia’s domestic markets. Among different dairy products, cheese has been the one for which domestic production has significantly increased and cheese import decreased since the summer of 2014. This paper aims to explore the effects of trade policies and other macroeconomic changes in 2014 on cheese price development in the domestic Russian market. Based on the law of one price, we considered price cointegration and price dispersion methodologies to test the cheese prices developments between producing and consuming regions before and after the summer of 2014. We applied Johansen co-integration test, VECM and dynamic panel models. We used 39 price pairs between main cheese producing and cheese consuming regions for the period of 2008–2016 for price cointegration and partially for price dispersion. The research results show that cointegration of cheese prices between producing and consuming regions have substantially increased since the summer of 2014. Moreover, the dispersion of cheese prices between Moscow and the cheese producing regions has increased with significant effects of counter-sanctions, a reduction in cheese imports, and devaluation of the Russian currency. We conclude that the market efficiency has not increased in spite of boosted domestic cheese trade.

THE IMPACT OF TECHNOLOGY ON REGIONAL PRICE DISPERSION IN THE US

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.

Assessing the Effects of a Tobacco Tax Reform on the Industry Price-Setting Strategy.

In July 2020, the Executive Power submitted Bill no. 3887-2020 as the first step towards a wide reform of the Brazilian tax system. It will replace the current PIS/COFINS (charged on turnover of companies) by the CBS (a tax on goods and services), which includes a special regime for cigarettes. The novelty is that the specific cigarette tax will be charged on the highest retail price per cigarette brand across the country. This research simulates three scenarios that differ according to the price-setting strategy of the tobacco industry in reaction to the proposed tax reform. In all simulations, the tax reform would result in considerably higher cigarette prices, lower cigarette consumption, higher tax collection, and an implicit minimum price that is far above the current official price floor. Furthermore, the price dispersion and cross-border shopping across states would be reduced because prices and tax burden per brand would tend to be the same across the country due to the dominant price-setting strategy in the cigarette industry.

Macro shocks cause equilibrium price dispersion

Price dispersion is shown to arise when demand is stochastic, ex-ante identical competitive firms set price prior to the realization of uncertainty and ex-ante identical buyers cannot switch sellers if rationed.

The effect of design protection on price and price dispersion: Evidence from automotive spare parts

The design right is a widely used but poorly understood intellectual property right that allows the protection of products’ aesthetics and outer appearances. We study the influence of design protection on price by exploiting cross-country differences in the scope of protection in the European automotive spare parts market: In some countries, repair parts are exempted from design protection, while in others they are not. Based on detailed price data, our difference-in-differences estimates imply that design protection increases prices by about 5–8%, with large differences between carmakers. We then link our findings to the literature on deviations from the law of one price. We document large cross-country price deviations for identical spare parts and provide evidence that a part of these price deviations can be explained by the lack of harmonization of design protection in combination with carmakers’ pricing-to-market strategies.

DISPERSION IN INPUT AND OUTPUT PRICES: A FIRM-LEVEL ANALYSIS

Analyzing representative and rich data on the Indian formal manufacturing sector, this paper tries to establish an empirical relationship between prices of input, output and firm size of the plant. The firm-level data reflect tremendous dispersion in prices that firms pay to purchase material input even within an industry. Price heterogeneity is also observed for prices that firms charge for their output even for narrowly defined products. The paper constructs a model using information on output and input choices by firms to analyze the observed patterns. The paper finds that on average, bigger plants not only pay a premium for the inputs used in the production process, but also charge a premium for their outputs. After documenting the empirical relationship, the paper discusses the possible sources for price dispersion. The paper highlights sectoral variations in the correlation between plant size and prices, which are consistent with the findings in the literature related to the scope for quality differentiation in output as well as inputs. The empirical pattern observed supports the hypothesis that correlation between plant size and price can be driven by market power.

Consumer Search and Price Dispersion: A Comparison of Gas Station Prices Before and After COVID-19

탐색이론모형은 동질적인 재화에 대해 두 개 혹은 그 이상의 가격이 존재하는 가격분산을 소비자의 가격탐색에 따른 편익과 비용으로 설명한다. 우리나라 주유소에서 판매되는 운송용 유류는 품질과 서비스의 높은 동질성에도 불구하고 동일한 지역 내에서 다양한 가격에 판매되고 있다. 본 연구는 코로나19가 보통휘발유와 경유의 가격분산 변화에 미친 영향을 실증적으로 분석하고자 한다. 탐색이론모형에 따르면, 코로나19의 확산으로 감염 위험이 증가하여 운전자의 유류소비가 감소하거나 소비자의 가격탐색에 따른 편익이 감소하여 보통휘발유와 경유 소매가격의 분산이 증가할 것이라고 추론할 수 있다. 2019~2020년 서울특별시와 6대 광역시 주유소의 일별보통휘발유와 경유 가격 자료를 패널 고정효과 모형을 이용해 분석한 결과에 따르면, 코로나19 이후 보통휘발유와 경유 가격의 도시 수준 분산이 약 16.5%와 23.4% 증가하였다. 또한 코로나19 누적 확진자수가 증가할수록 보통휘발유와 경유 가격의 도시 내 격차는 확대되었으며, 이러한 효과는 코로나19 확산 초기 누적 확진자수가 적을수록 크게 나타났다. 한편 다른 조건이 일정할 경우, 유류 가격상승 지속기간이 증가할수록 해당 유류의 가격분산은 감소하였지만 가격하락 지속기간은 가격분산에 유의미한 영향을 주지 않았다.The search-theoretic model attibutes the price dispersion, variation in prices across sellers of the homogeneous goods, to the differences in benefits and costs of consumer search for lower price. Transportation oil at gas stations in Korea is sold at various prices even within the same region despite its homogeneity in quality and services. This study analyzed the effect of Covid-19 on the price dispersion of regular gasoline and diesel. According to the search-theoretic model, the spread of Corona 19 is expected to increase the risk of infection such that reduced transportation oil consumption or lowered benefits of price search will result in an increase in the dispersion of regular gasoline and diesel prices. Using daily regular gasoline and diesel price data at Seoul and six metropolitan cities in Korea between 2019 and 2020. we find that the city-level dispersion of regualar gasoline and diesel prices increased by about 16.5% and 23.4% after the spread of COVID-19. Our results also suggest that, as the cumulative number of confirmed cases of Corona 19 increases, the price dispersion of regular gasoline or diesel widens, and this effect is shown to be stronger at earlier days of COVID-19 era. Finally the price dispersion of transportation oil decreases more as the duration of oil price rise lasts longer, but the duration of oil price decline has no statistically significant effect on oil price dispersion.

Affordability of Different Isocaloric Healthy Diets in Germany-An Assessment of Food Prices for Seven Distinct Food Patterns.

Affordability of different isocaloric healthy diets in Germany—an assessment of food prices for seven distinct food patterns Background: For decades, low-fat diets were recommended as the ideal food pattern to prevent obesity, type 2 diabetes and their long-term complications. Nowadays, several alternatives considering sources and quantity of protein, fat and carbohydrates have arisen and clinical evidence supports all of them for at least some metabolic outcomes. Given this variety in diets and the lack of a single ideal diet, one must evaluate if patients at risk, many of which having a lower income, can actually afford these diets. Aim: We modelled four-week food plans for a typical family of two adults and two school children based on seven different dietary patterns: highly processed standard omnivore diet (HPSD), freshly cooked standard omnivore diet (FCSD), both with German average dietary composition, low-protein vegan diet (VeganD), low-fat vegetarian diet (VegetD), low-fat omnivore diet (LFD), Mediterranean diet (MedD) and high-fat moderate-carb diet (MCD). The isocaloric diets were designed with typical menu variation for all meal times. We then assessed the lowest possible prices for all necessary grocery items in 12 different supermarket chains, avoiding organic foods, special offers, advertised exotic super foods and luxury articles. Prices for dietary patterns were compared in total, stratified by meal time and by food groups. Results: Among all seven dietary patterns, price dispersion by supermarket chains was 12–16%. Lowest average costs were calculated for the VegetD and the FCSD, followed by HPSD, LFD, VeganD, MedD and—on top—MCD. VeganD, MedD and MCD were about 16%, 23% and 67% more expensive compared to the FCSD. Major food groups determining prices for all diets are vegetables, salads and animal-derived products. Calculations for social welfare severely underestimate expenses for any kind of diet. Conclusions: Food prices are a relevant factor for healthy food choices. Food purchasing is financially challenging for persons with very low income in Germany. Fresh-cooked plant-based diets are less pricy than the unhealthy HPSD. Diets with reduced carbohydrate content are considerably more expensive, limiting their use for people with low income. Minimum wage and financial support for long-term unemployed people in Germany are insufficient to assure a healthy lifestyle.

Market Liquidity and Its Dimensions: Linking the Liquidity Dimensions to Sentiment Analysis through Microblogging Data

Market liquidity has an immediate impact on the execution of transactions in financial markets. Informed counterparty risk is often priced into market liquidity. This study investigates whether microblogging data, as a non-financial information tool, is priced along with market liquidity dimensions. The analysis is based on the Australian Securities Exchange (ASX), and from the results, we conclude that microblogging content in pessimistic periods has a higher impact on liquidity and its dimensions. On a daily basis, pessimistic investor sentiments lead to higher trading costs, illiquidity, a larger price dispersion and a lower trading volume.

Statistical Modelling of the Market Value of Dwellings, on the Example of the City of Kraków

The analysis of a city’s spatial development, in terms of a location that meets the needs of its inhabitants, requires many approaches. The preliminary assessment of the collected material showed that there was real estate in the database whose price did not have market characteristics. For the correct formulation of the valuation model, it is necessary to detect and eliminate or reduce the impact of these properties on the valuation results. In this study, multivariate analysis was used and three methods of detecting outliers were verified. The database of 8812 residential premises traded on the primary market in Kraków was analyzed. In order to detect outliers, the following indices were determined: projection matrix, Mahalanobis distances, standardized chi test and Cook distances. Critical values were calculated based on the formulas proposed in the publication. The probability level was P = 0.95. The article shows that the selected methods of eliminating outliers—the methods of standardized residuals and the Cook’s distance method give similar regression models. Further analysis (with the use of classification tree methods) made it possible to distinguish zones that are homogeneous in terms of price dispersion. In these zones, a set of features influencing real estate prices were determined.