DP14514 Store expensiveness and consumer saving: Insights from a new decomposition of price dispersion

Author(s): Sofronis Clerides, Pascal Courty, Yupei Ma
Publication Date: March 2020
Date Revised: January 2022
Keyword(s): consumer basket, consumer saving, grocery shopping, price dispersion, store expensiveness
JEL(s): D12, D14
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14514

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.