Deviations from ‘optimal prices’ may imply that monetary policy is not efficiently transmitted to inflation, hindering central banks’ objective of price stability. But is price dispersion also a concern for consumers? This Rue de la Banque describes price dispersion across stores in France and then focuses on the perspective of consumers. Indeed, price deviations from ‘normal’ prices are persistent over time in France and expensive and cheap stores tend to be consistently so across the products they sell. Luckily for French consumers, assessing the relative expensiveness of stores appears rather easy.
By Berardi Nicoletta
A striking fact known to every single person living in a market economy is that the same product is sold at different prices (that is, the so-called ‘law of one price’ is false). Any attempt to understand how prices are set is doomed to fail if it does not account for the fact that even for homogeneous goods prices differ across sellers at any given time. The violation of the law of one price is a potential concern not only for economists and central banks, but also for all consumers.
The trouble is that, although we all have casual evidence of stores selling the same product at different prices, assessing price distributions at the economy-wide level requires a huge amount of information. The need to gather and treat ‘big data’ is why we used to know very little about such a familiar phenomenon. This Rue de la Banque is based on the first analysis of the shape and structure of price dispersion in the French retail sector (Berardi et al., 2017), exploiting information on almost 40 million prices across 1,500 stores in France.
Updated on: 01/08/2018 16:34