This study examines grocery price differentials across neighborhoods in a large metropolitan area (the city of Jerusalem, Israel). Important variation in access to affordable grocery shopping is documented using CPI data on prices and neighborhood-level credit card expenditure data. Residents of peripheral, nonaffluent neighborhoods are charged some of the highest prices in the city and yet display a low tendency to shop outside their neighborhood. In contrast, residents of affluent, centrally located neighborhoods often benefit from lower grocery prices charged in their own neighborhood while also displaying a high propensity to shop at the hard discount grocers located in the city’s commercial districts. The role of spatial frictions in shaping these patterns is studied within a structural model where households determine their shopping destination and retailers choose prices. The estimated model implies strong spatial segmentation in households’ demand. Counterfactual analyses reveal that alleviating spatial frictions results in considerable benefits to the average resident of the peripheral neighborhoods. At the same time, it barely affects the equilibrium prices charged across the city, and so it does little to benefit households with limited mobility.
This paper uses transaction-level data from a firm in the High Technology sector to compare the revenue garnered from customers who purchase via sales representatives to that garnered from customers who purchase online. The interaction mode may be correlated with the customer’s unobserved valuation for the service, and this potential endogeneity is addressed using an instrumental variable. Specifically, the data indicate whether the customer’s details were recorded in the company’s information systems following an initial contact, such as the download of a free version from the company’s website. The availability of such leads facilitated representatives’ ability to contact customers, generating exogenous variation in the probability of interacting with a representative. Instrumental variable estimates indicate that such interaction lowers the total revenue garnered from a paying customer during the sample period. The primary driver of this result is a churn effect: customers who purchased online displayed a longer overall relationship with the firm, and were more likely to renew an expiring subscription. An alternative explanation, according to which representatives lowered revenues by reassuring customers regarding the adequacy of cheaper versions of the product, is not supported by the data.
We clarify the sense in which the market outcome may be biased against preference minorities, and then estimate the degree of bias using an empirical model of entry into American radio broadcasting markets. Listening model estimates are used to infer fixed costs, and these estimates are then used to compute optimal station configurations as well as the welfare weights on different groups that rationalize the observed configuration. Welfare weights are 2-3 times higher for whites than for blacks, and 1.5-2 times higher for non-Hispanic than Hispanic, listeners. We explore the role of 'importing' and 'exporting' patterns in generating these findings.
A vast theoretical literature shows that inefficient market structures may arise in free entry equilibria. Previous empirical work demonstrated that excessive entry may obtain in local radio markets. Our paper extends that literature by relaxing the assumption that stations are symmetric, allowing instead for endogenous station differentiation along both (observed) horizontal and (unobserved) vertical dimensions. We find that, in most broadcasting formats, a social planner who takes into account the welfare of market participants (stations and advertisers) would eliminate 50%-60% of the stations observed in equilibrium. In 80%-94.9% of markets that have high quality stations in the observed equilibrium, welfare could be unambiguously improved by converting one such station into low quality broadcasting. In contrast, it is never unambiguously welfare-enhancing to convert an observed low quality station into a high quality one. This suggests local over-provision of quality in the observed equilibrium, in addition to the finding of excessive entry.
The "emerging middle class" is a force of economic importance in many consumer markets around the globe. A striking phenomenon in some of these markets is the growth of "generic," low-price brands. This paper examines these phenomena in Brazil's large soft drink market. Our study draws on data sources that capture both social mobility and market outcomes. Our analysis suggests that the emergence of a price-sensitive, new middle class aided the staggering growth of a fringe of generic producers. Our estimated demand model rationalizes a drastic price cut, led by Coca-Cola, that allowed it to contain the fringe's growth.
This article investigates the welfare implications of the rapid innovation in central processing units (CPUs), and asks whether it results in inefficient elimination of basic personal computer (PC) products. I analyse a game in which firms make multiple discrete product choices, and tackle challenges such as partial identification and sample selection. Estimation results demonstrate that the demand for PCs is highly segmented, and that fixed costs consume a substantial portion of the per-unit producer profit. The estimated model implies that Intel’s introduction of its Pentium M chip contributed significantly to the growth of the mobile PC segment and to consumer welfare. The lion’s share of the benefits to consumers was enjoyed by the 20% least price-sensitive consumers. I also find that the Pentium M crowded out the Pentium III and Pentium 4 technologies, and that the benefits to consumers from keeping those older products on the shelf would have been comparable to the added fixed costs. While total welfare cannot be increased by keeping older technologies on the shelf, such a policy would have allowed the benefits from innovation to “trickle down” to price-sensitive households, improving their access to mobile computing