Existence and Persistence of Price Dispersion: An Empirical Analysis

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Abstract
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, intradistribution mobility is significant: stores move up and down the crosssectional 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. © 2002 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology

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