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Can Price Dispersion Reveal Distance-Related Trade Costs? Evidence from the United States

Michael A. Anderson

Washington and Lee University, Lexington, VA 24450, USA

E-mail Address: andersonm@wlu.edu

Corresponding author.

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Kurt C. Schaefer

Department of Economics, Calvin College, 1740 Knollcrest Circle SE, Grand Rapids, MI 49546, USA

E-mail Address: schk@calvin.edu

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, and

Stephen L. S. Smith

Gordon College, Wenham, MA 01984, USA

E-mail Address: stephen.smith@gordon.edu

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https://doi.org/10.1515/gej-2012-0026Cited by:3 (Source: Crossref)

Abstract

We offer insights on how distance-related trade costs may best be inferred from price-dispersion measures. Using a simple spatial model of price dispersion, we argue that measures of price dispersion that are not spatially informed can mislead researchers into concluding that distance-related costs are small even when such costs are the major determinant of price dispersion. With intra-United States data on eleven goods, we find that distance-related costs are large and are indeed underestimated when inferred from standard, non-spatial, price dispersion measures. Our empirical findings have implications for studies of market integration policies (such as trade liberalization and currency unions) and the significance of economic geography.

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References

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Acknowledgements

Acknowledgements: We wish to thank an anonymous referee for helpful comments, along with seminar participants at the U.S. International Trade Commission, the Southern Economics Association, Syracuse University, the Mid-West International Economics Group, and the Federal Reserve Board of Governors. We also thank J. David Richardson, Raymond Robertson, John Rogers, and John Schindler for comments on earlier versions. Neil Carlson helped with GIS assistance, and Katherine Boiles, Chris Dadak, Adam Hoehn, Parker Sheppard and Ian Sturdy provided able research assistance. Anderson’s work was funded in large part by a sabbatical grant from the American Philosophical Society, whose support is gratefully acknowledged. Remaining errors are our responsibility.

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Can Price Dispersion Reveal Distance-Related Trade Costs? Evidence from the United States

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