The impact of technology on regional price dispersion in the US
Abstract
We analyze the behavior of inflation in the era of fast pace information thanks to technological advances, especially internet. Owing to readily available information, prices/inflation should quickly converge under perfect competition. To this end, we explore the possibility of price convergence in regional inflation in the USA including the permanency of such a phenomenon if observed, a concern for monetary policy makers. Empirically, we analyze standard deviation of regional inflation with special attention to technology. We show that standard deviation of inflation is not constant over time, but not necessarily ever-declining. Technology seems to help reduce price dispersion across regions.
First published online 12 October 2021
Keyword : inflation differentials, inflation persistence, convergence, technology, structural break
How to Cite
Genc, I. H. (2021). The impact of technology on regional price dispersion in the US. Technological and Economic Development of Economy, 27(6), 1281-1300. https://doi.org/10.3846/tede.2021.15238
This work is licensed under a Creative Commons Attribution 4.0 International License.
References
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Federal Reserve Bank of St. Louis. (2019, July 25). NBER based recession indicators for the United States from the period following the peak through the trough [USRECQ].
https://fred.stlouisfed.org/series/USRECQ
Fishman, C. (2007). The Wal-Mart effect (2nd ed.). Penguin Books.
Goodfriend, M. (2002). The phases of U.S. monetary policy: 1987 to 2001. Economic Quarterly, 88(4), 1–17.
Goolsbee, A. D., & Klenow, P. J. (2018, May 18). Internet rising, prices falling: measuring inflation in a world of e-commerce (Working Paper). University of Chicago. https://doi.org/10.3386/w24649
Gopinath, G., Gourinchas, P.-O., Hsieh, C.-T., & Li, N. (2011). International prices, costs, and markup differences. American Economic Review, 101(6), 2450–2486. https://doi.org/10.1257/aer.101.6.2450
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Gorodnichenko, Y., Sheremirov, V., & Talavera, O. (2018a). Price setting in online markets: does it click?” Journal of the European Economic Association, 16(6), 1764–1811. https://doi.org/10.1093/jeea/jvx050
Gorodnichenko, Y., Sheremirov, V., & Talavera, O. (2018b). The responses of internet retail prices to aggregate shocks: a high-frequency approach. Economics Letters, 164, 124–127. https://doi.org/10.1016/j.econlet.2018.01.014
Hatzius, J., Phillips, A., Mericle, D., Hill, S., Struyven, D., Reichgott, K., & Thakkar, A. (2017, August). US daily: the internet and inflation: how big is the amazon effect? (Mericle). Goldman Sachs Economics Research.
Hilbert, M., & Lopez, P. (2011). The world’s technological capacity to store, communicate, and compute information. Science, 332(6025), 60–65. https://doi.org/10.1126/science.1200970
Hodrick, R. J., & Prescott, E. C. (1997). Postwar U.S. business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29, 1–16. https://doi.org/10.2307/2953682
Isaac, A. (2018, July 9). ‘Amazon effect’ on prices to be included in official inflation statistics. The Telegraph. https://www.telegraph.co.uk/business/2018/07/08/amazon-effect-prices-included-official-inflation-statistics/
Jorgenson, D. W. (2001). Information technology and the U.S. economy. The American Economic Review, 91(1), 1–32. https://doi.org/10.1257/aer.91.1.1
Kim, R. Y. (2020). The impact of COVID-19 on consumers: preparing for digital sales. IEEE Engineering Management Review, 48(3), 212–218. https://doi.org/10.1109/EMR.2020.2990115
Lampertius, J. (2019, April 8). The Amazon effect on physical retailers: how not to end up like sears.
https://www.mytotalretail.com/article/the-amazon-effect-on-physical-retailers-how-not-to-end-up-like-sears/
Lin, C., & Lekhawipat, W. (2014). Factors affecting online repurchase intention. Industrial Management and Data Systems, 114(4), 597–611. https://doi.org/10.1108/IMDS-10-2013-0432
Lv, L., Liu, Z., & Xu, Y. (2019). Technological progress, globalization and low-inflation: evidence from the United States. PLoS ONE, 14(4), e0215366. https://doi.org/10.1371/journal.pone.0215366
Meltzer, A. H. (2005). Origins of the great inflation. Review, 87(2, Part 2), 145–176.
https://doi.org/10.20955/r.87.145-176
Microdinc. (n.d). What is the Amazon effect. https://www.microdinc.com/blog/what-is-the-amazon-effect/
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Ogawa, E., & Kumamoto, M. (2008, July). Inflation differentials and the differences of monetary policy effects among euro area countries (Working Paper No. E-9). Tokyo Center for Economic Research.
http://www.tcer.or.jp/wp/pdf/e9.pdf
Pan, X., Ratchford, B. T., & Shankar, V. (2004). Price dispersion on the internet: A review and directions for future research. Journal of Interactive Marketing, 18(4), 116–135. https://doi.org/10.1002/dir.20019
Peres, R., Muller, E., & Mahajan, V. (2010). Innovation diffusion and new product growth models: a critical review and research directions. International Journal of Research in Marketing, 27, 91–106. https://doi.org/10.1016/j.ijresmar.2009.12.012
Rangaswami, A., & Gupta, S. (2000). Innovation adoption and diffusion in the digital environments: some research opportunities. In V. Mahajan, E. Muller, & Y. Wind (Eds.), New product diffusion models. Springer.
Rotemberg, J. J. (2011). Fair pricing. Journal of the European Economic Association, 9(5), 952–981. https://doi.org/10.1111/j.1542-4774.2011.01036.x
Russell, T., Fischer, P., Behlke, M., & Quinn, K. (2018). The Amazon effect on public finance: what is the optimal tax structure in the internet age? Municipal Finance Journal, 39(1/2), 39–63.
Satterthwaite, F. E. (1946). An approximate distribution of estimates of variance components. Biometrics Bulletin, 2(6), 110–114. https://doi.org/10.2307/3002019
Sheth, J. (2020). Impact of Covid-19 on consumer behavior: Will the old habits return or die? Journal of Business Research, 117, 280–283. https://doi.org/10.1016/j.jbusres.2020.05.059
Varian, H. R. (1980). A model of sales. The American Economic Review, 70(4), 651–659.
Wadhwani, S. (2000, May). The impact of the internet on UK inflation. Bank of England Quarterly Bulletin, 184–198. https://ssrn.com/abstract=764267
Welch, B. L. (1951). On the comparison of several mean values: an alternative approach. Biometrika, 38(3–4), 330–336. https://doi.org/10.1093/biomet/38.3-4.330
Wilson, W. (n.d.). Proof that 1983 was the birth of modern era technology. https://www.goliath.com/tech/proof-that-1983-was-the-birth-of-modern-era-technology/
Wolfinbarger, M., & Gilly, M. C. (2001). Shopping online for freedom, control, and fun. California Management Review, 43(2), 34–55. https://doi.org/10.2307/41166074
Yi, M. H., & Choi, C. (2005). The Effect of the Internet on Inflation: Panel Data Evidence. Journal of Policy Modeling, 27, 885–889. https://doi.org/10.1016/j.jpolmod.2005.06.008
Zhao, Y. (2006). Price dispersion in the grocery market. The Journal of Business, 79(3), 1175–1192. https://doi.org/10.1086/500673
Zivot, E., & Andrews, D. (1992). Further evidence of great crash, the oil price shock and unit root hypothesis. Journal of Business and Economic Statistics, 10, 251–270. https://doi.org/10.1080/07350015.1992.10509904
Bai, J., & Perron, P. (1998). Estimating and testing linear models with multiple structural changes. Econometrica, 66, 47–78. https://doi.org/10.2307/2998540
Bai, J., & Perron, P. (2003a). Computation and analysis of multiple structural change models. Journal of Applied Econometrics, 18, 1–22. https://doi.org/10.1002/jae.659
Bai, J., & Perron, P. (2003b). Critical values for multiple structural change tests. Econometrics Journal, 1, 1–7. https://doi.org/10.1111/1368-423X.00102
Baye, M. R., Morgan, J., & Scholten, P. (2006). Information, search, and price dispersion. In T. Hendershot (Ed.), Handbook on economics and information systems. Elsevier. https://doi.org/10.1016/S1574-0145(06)01006-3
Berardi, N., Sevestre, P., & Thébault, J. (2017, June). The determinants of consumer price dispersion: evidence from French supermarkets (Banque de France Working Paper No. 632). https://doi.org/10.2139/ssrn.2992468
Blinder, A. S. (1982). The anatomy of double-digit inflation in the 1970s. In R. E. Hall (Ed.), Inflation: causes and effects (pp. 261–282). University of Chicago Press.
Blinder, A. S. (1994). On sticky prices: academic theories meet the real world. In G. Mankiw (Ed.), Monetary policy (pp. 117–154). University of Chicago Press.
Blundell, R., Griffith, R., Levell, P., & O’Connell, M. (2020). Could COVID-19 infect the Consumer Prices Index? Fiscal Studies, 41(2), 357–361. https://doi.org/10.1111/1475-5890.12229
Brynjolfsson, E., & McAfee, A. (2012, January). Race against the machine: how the digital revolution is accelerating innovation, driving productivity, and irreversibly transforming employment and the economy. The MIT Center for Digital Business.
Castro, J. V. (2004). Indicators of real economic convergence. A primer (UNU-CRIS e-Working Papers No. W-2004/2). United Nations University.
Cavallo, A. (2017). Are online and offline prices similar? Evidence from large multi-channel retailers. The American Economic Review, 107(1), 283–303. https://doi.org/10.1257/aer.20160542
Cavallo, A. (2018, September 7). More amazon effects: online competition and pricing behaviors (Working Paper). Harvard Business School & NBER. https://doi.org/10.3386/w25138
Charbonneau, K., Evans, A., Sarker, S., & Suchanek, L. (2017). Digitalization and inflation: a review of the literature. Staff analytical note/note analytique du personnel 2017-20. Bank of Canada.
Choi, B., Kim, D., & Cho, H. C. (2019). Price response, information, and asymmetry of price dispersion. Applied Economics, 51(39), 4270–4281. https://doi.org/10.1080/00036846.2019.1591600
Ciccarelli, M., & Osbat, C. (Eds.). (2017). Low inflation in the euro area: causes and consequences (ECB Occasional Paper No. 181). European Central Bank (ECB), Frankfurt a. M. https://www.econstor.eu/bitstream/10419/154634/1/ecbop181.pdf
Clemente, J., Montanes, A., & Reyes, M. (1998). Testing for a unit root in variables with a double change in the mean. Economics Letters, 59(2), 175–182. https://doi.org/10.1016/S0165-1765(98)00052-4
Del Rey, J. (2020, April 10). Amazon was already powerful. The coronavirus pandemic cleared the way to dominance. Vox. https://www.vox.com/recode/2020/4/10/21215953/amazon-fresh-walmartgrocery-delivery-coronavirus-retail-store-closures
Dickey, D. A., & Fuller, W. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74, 427–431. https://doi.org/10.1080/01621459.1979.10482531
Dubois, P., & Perrone, H. (2018). Price dispersion and informational frictions: evidence from supermarket purchases (Discussion Paper Series – CRC TR 224, Discussion Paper No. 047, Project B 04). University of Bonn.
El-Arian, M. (2019, May 24). How the Amazon-Google-Uber effect dictates low inflation. The Guardian. https://www.theguardian.com/business/2019/may/24/how-the-amazon-google-uber-effect-dictates-low-inflation
Ellison, G., & Ellison, S. F. (2009). Search, obfuscation, and price elasticities on the internet. Econometrica, 77(2), 427–452. https://doi.org/10.3982/ECTA5708
eMarketer Editors. (2018, July 16). Amazon now has nearly 50% of US ecommerce market. https://www.emarketer.com/content/amazon-now-has-nearly-50-of-us-ecommerce-market
Federal Reserve Bank of San Francisco. (2019, July 24). San Francisco Tech Pulse [SFTPINDM114SFRBSF]. FRED, Federal Reserve Bank of St. Louis. https://fred.stlouisfed.org/series/SFTPINDM114SFRBSF
Federal Reserve Bank of St. Louis. (2018, April 3). A closer look at the reasons for low inflation. St. Louis Fed on the Economy blog. https://www.stlouisfed.org/on-the-economy/2018/april/closer-look-reasons-low-inflation
Federal Reserve Bank of St. Louis. (2019, July 25). NBER based recession indicators for the United States from the period following the peak through the trough [USRECQ].
https://fred.stlouisfed.org/series/USRECQ
Fishman, C. (2007). The Wal-Mart effect (2nd ed.). Penguin Books.
Goodfriend, M. (2002). The phases of U.S. monetary policy: 1987 to 2001. Economic Quarterly, 88(4), 1–17.
Goolsbee, A. D., & Klenow, P. J. (2018, May 18). Internet rising, prices falling: measuring inflation in a world of e-commerce (Working Paper). University of Chicago. https://doi.org/10.3386/w24649
Gopinath, G., Gourinchas, P.-O., Hsieh, C.-T., & Li, N. (2011). International prices, costs, and markup differences. American Economic Review, 101(6), 2450–2486. https://doi.org/10.1257/aer.101.6.2450
Gordon, R. J. (2014, August). The turtle’s progress: secular stagnation meets the headwinds. VOX / CEPR Policy Portal. https://voxeu.org/article/turtle-s-progress-secular-stagnation-meets-headwinds
Gorodnichenko, Y., Sheremirov, V., & Talavera, O. (2018a). Price setting in online markets: does it click?” Journal of the European Economic Association, 16(6), 1764–1811. https://doi.org/10.1093/jeea/jvx050
Gorodnichenko, Y., Sheremirov, V., & Talavera, O. (2018b). The responses of internet retail prices to aggregate shocks: a high-frequency approach. Economics Letters, 164, 124–127. https://doi.org/10.1016/j.econlet.2018.01.014
Hatzius, J., Phillips, A., Mericle, D., Hill, S., Struyven, D., Reichgott, K., & Thakkar, A. (2017, August). US daily: the internet and inflation: how big is the amazon effect? (Mericle). Goldman Sachs Economics Research.
Hilbert, M., & Lopez, P. (2011). The world’s technological capacity to store, communicate, and compute information. Science, 332(6025), 60–65. https://doi.org/10.1126/science.1200970
Hodrick, R. J., & Prescott, E. C. (1997). Postwar U.S. business cycles: an empirical investigation. Journal of Money, Credit, and Banking, 29, 1–16. https://doi.org/10.2307/2953682
Isaac, A. (2018, July 9). ‘Amazon effect’ on prices to be included in official inflation statistics. The Telegraph. https://www.telegraph.co.uk/business/2018/07/08/amazon-effect-prices-included-official-inflation-statistics/
Jorgenson, D. W. (2001). Information technology and the U.S. economy. The American Economic Review, 91(1), 1–32. https://doi.org/10.1257/aer.91.1.1
Kim, R. Y. (2020). The impact of COVID-19 on consumers: preparing for digital sales. IEEE Engineering Management Review, 48(3), 212–218. https://doi.org/10.1109/EMR.2020.2990115
Lampertius, J. (2019, April 8). The Amazon effect on physical retailers: how not to end up like sears.
https://www.mytotalretail.com/article/the-amazon-effect-on-physical-retailers-how-not-to-end-up-like-sears/
Lin, C., & Lekhawipat, W. (2014). Factors affecting online repurchase intention. Industrial Management and Data Systems, 114(4), 597–611. https://doi.org/10.1108/IMDS-10-2013-0432
Lv, L., Liu, Z., & Xu, Y. (2019). Technological progress, globalization and low-inflation: evidence from the United States. PLoS ONE, 14(4), e0215366. https://doi.org/10.1371/journal.pone.0215366
Meltzer, A. H. (2005). Origins of the great inflation. Review, 87(2, Part 2), 145–176.
https://doi.org/10.20955/r.87.145-176
Microdinc. (n.d). What is the Amazon effect. https://www.microdinc.com/blog/what-is-the-amazon-effect/
Mincer, J., & Danninger, S. (2000, July). Technology, unemployment and inflation (Working Paper No. 7817). NBER. https://doi.org/10.3386/w7817
Nelson, E. (2004). The great inflation of the seventies: what really happened? (Working Paper No. 2004001). Federal Reserve Bank of St. Louis. https://doi.org/10.20955/wp.2004.001
Ogawa, E., & Kumamoto, M. (2008, July). Inflation differentials and the differences of monetary policy effects among euro area countries (Working Paper No. E-9). Tokyo Center for Economic Research.
http://www.tcer.or.jp/wp/pdf/e9.pdf
Pan, X., Ratchford, B. T., & Shankar, V. (2004). Price dispersion on the internet: A review and directions for future research. Journal of Interactive Marketing, 18(4), 116–135. https://doi.org/10.1002/dir.20019
Peres, R., Muller, E., & Mahajan, V. (2010). Innovation diffusion and new product growth models: a critical review and research directions. International Journal of Research in Marketing, 27, 91–106. https://doi.org/10.1016/j.ijresmar.2009.12.012
Rangaswami, A., & Gupta, S. (2000). Innovation adoption and diffusion in the digital environments: some research opportunities. In V. Mahajan, E. Muller, & Y. Wind (Eds.), New product diffusion models. Springer.
Rotemberg, J. J. (2011). Fair pricing. Journal of the European Economic Association, 9(5), 952–981. https://doi.org/10.1111/j.1542-4774.2011.01036.x
Russell, T., Fischer, P., Behlke, M., & Quinn, K. (2018). The Amazon effect on public finance: what is the optimal tax structure in the internet age? Municipal Finance Journal, 39(1/2), 39–63.
Satterthwaite, F. E. (1946). An approximate distribution of estimates of variance components. Biometrics Bulletin, 2(6), 110–114. https://doi.org/10.2307/3002019
Sheth, J. (2020). Impact of Covid-19 on consumer behavior: Will the old habits return or die? Journal of Business Research, 117, 280–283. https://doi.org/10.1016/j.jbusres.2020.05.059
Varian, H. R. (1980). A model of sales. The American Economic Review, 70(4), 651–659.
Wadhwani, S. (2000, May). The impact of the internet on UK inflation. Bank of England Quarterly Bulletin, 184–198. https://ssrn.com/abstract=764267
Welch, B. L. (1951). On the comparison of several mean values: an alternative approach. Biometrika, 38(3–4), 330–336. https://doi.org/10.1093/biomet/38.3-4.330
Wilson, W. (n.d.). Proof that 1983 was the birth of modern era technology. https://www.goliath.com/tech/proof-that-1983-was-the-birth-of-modern-era-technology/
Wolfinbarger, M., & Gilly, M. C. (2001). Shopping online for freedom, control, and fun. California Management Review, 43(2), 34–55. https://doi.org/10.2307/41166074
Yi, M. H., & Choi, C. (2005). The Effect of the Internet on Inflation: Panel Data Evidence. Journal of Policy Modeling, 27, 885–889. https://doi.org/10.1016/j.jpolmod.2005.06.008
Zhao, Y. (2006). Price dispersion in the grocery market. The Journal of Business, 79(3), 1175–1192. https://doi.org/10.1086/500673
Zivot, E., & Andrews, D. (1992). Further evidence of great crash, the oil price shock and unit root hypothesis. Journal of Business and Economic Statistics, 10, 251–270. https://doi.org/10.1080/07350015.1992.10509904