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PRICE DISPERSION AND DEMAND UNCERTAINTY: EVIDENCE FROM U.S. SCANNER DATA |
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| Authors: | Benjamin Eden |
| Affiliation: | Vanderbilt University, U.S.A.This is a revised version of a working paper by the same title (VUECON‐13‐00015, October 2013). I would like to thank P. J. Glandon, Maya Eden, Saul Lach, and Jonah Yuen for useful comments on an earlier draft and especially to Vivian Ying Jiang for excellent research assistance. |
| Abstract: | I use the Prescott (1975) hotels model to explain variations in price dispersion across items sold by supermarkets in Chicago. The effect of uncertainty about aggregate demand on price dispersion is highly significant and quantitatively important: My estimates suggest that more than 40% of the cross‐sectional standard deviation of log prices is due to demand uncertainty. I also find that price dispersion measures are negatively correlated with the average price but are not negatively correlated with the revenues from selling the good (across stores and weeks) and with the number of stores that sell the good. |
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