Discussion paper
DP12910 Fading Choice: Transport Costs and Variety in Consumer Goods
We examine the spatial variation in variety of manufactured goods to study how choice fades with distance. We use data from a purpose-designed survey of shops and consumers in villages in Ethiopia and prices of matched source and destination goods to estimate similar tastes for variety across space. Our estimates suggest that the average mark-up in prices between source and destination is between 10%-15%, while the welfare effects of falling variety average 15% of consumer expenditures on manufactures, but rising as high as 40% across space. We attribute about 44% of the total loss in welfare across space to the loss in variety, with the remainder due to prices.
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