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Title: Store expensiveness and consumer saving: Insights from a new decomposition of price dispersion

Author(s): Sofronis Clerides, Pascal Courty and Yupei Ma

Publication Date: March 2020

Keyword(s): consumer basket, consumer saving, grocery shopping, price dispersion and store expensiveness

Programme Area(s): Industrial Organization

Abstract: We build on recent work analyzing consumers' ability to save by exploiting price dispersion in grocery stores. We show that store expensiveness is not universal but varies across consumers depending on the basket they consume. We incorporate this insight into a price variance decomposition that is an adaptation of Kaplan and Menzio's (2015) approach. We find that the ability to choose the right product at the right store is much less important than Kaplan and Menzio found; rather, the ability to choose the cheapest stores for one's basket is a more important source of variation in consumer savings. Our approach also provides an informal test for competing theories modeling consumers as either shopping for products or shopping for categories, and finds support for both.

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Bibliographic Reference

Clerides, S, Courty, P and Ma, Y. 2020. 'Store expensiveness and consumer saving: Insights from a new decomposition of price dispersion'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14514