Existence and Persistence of Price Dispersion: an Empirical Analysis

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, intra-distribution 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.

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