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Local retail prices, product varieties and neighborhood change

Borraz, Fernando, Carozzi, Felipe ORCID: 0000-0002-0458-5531, Gonzalez Pampillon, Nicolas and Zipitria, Leandro (2022) Local retail prices, product varieties and neighborhood change. CEP Discussion Papers (CEPDP1822). London School of Economics and Political Science. Centre for Economic Performance, London, UK.

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We study how local grocery prices within a city are affected by changes in housing markets. Our empirical strategy is based on an exogenous shift in the spatial distribution of construction activity induced by a large-scale, place-based tax exemption in the city of Montevideo. We provide instrumental variable estimates showing that the relative price of grocery goods decreases in areas within the city that experience more residential development: the estimated elasticity of grocery prices to newly-built residential space lies between -3 and -4%. Using a multi-product model of imperfect competition, we show that this negative effect can result from either an expansion in product varieties or firm entry. We report evidence supporting the varieties channel, with new residential development causing an increase in varieties of groceries available locally, and evidence of changes in the composition of stores.

Item Type: Monograph (Discussion Paper)
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Additional Information: © 2022 The Author(s)
Divisions: Geography & Environment
What Works Centre
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HD Industries. Land use. Labor
JEL classification: R - Urban, Rural, and Regional Economics > R2 - Household Analysis > R23 - Regional Migration; Regional Labor Markets; Population
R - Urban, Rural, and Regional Economics > R3 - Production Analysis and Firm Location > R32 - Other Production and Pricing Analysis
Date Deposited: 06 Jan 2023 11:21
Last Modified: 16 May 2024 12:25

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