Cookies?
Library Header Image
LSE Research Online LSE Library Services

The unequal gains from product innovations: evidence from the U.S. Retail sector

Jaravel, Xavier (2019) The unequal gains from product innovations: evidence from the U.S. Retail sector. Quarterly Journal of Economics, 134 (2). pp. 715-783. ISSN 0033-5533

[img] Text (Unequal gains from product innovations) - Accepted Version
Repository staff only until 4 December 2020.

Download (2MB) | Request a copy

Identification Number: 10.1093/qje/qjy031

Abstract

This article examines how product innovations led to inflation inequality in the United States from 2004 to 2015. Using scanner data from the retail sector, I find that annual inflation for retail products was 0.661 (std. err. 0.0535) percentage points higher for the bottom income quintile relative to the top income quintile. When including changes in product variety over time, this difference increases to 0.8846 (std. err. 0.0739) percentage points a year. In CEX-CPI data covering the full consumption basket, the annual inflation difference is 0.368 (std. err. 0.0502) percentage points. I investigate the following hypothesis: (i) the relative demand for products consumed by high-income households increased because of growth and rising inequality; (ii) in response, firms introduced more new products catering to such households; (iii) as a result, the prices of continuing products in these market segments fell due to increased competitive pressure. Using a shift-share research design, I find causal evidence that increasing relative demand leads to increasing product variety and lower inflation for continuing products. A calibration indicates that the hypothesized channel accounts for a large fraction (over 50%) of observed inflation inequality.

Item Type: Article
Divisions: Economics
Date Deposited: 13 Jul 2020 15:15
Last Modified: 20 Oct 2020 07:43
URI: http://eprints.lse.ac.uk/id/eprint/105641

Actions (login required)

View Item View Item

Downloads

Downloads per month over past year

View more statistics