Price dispersion in Uruguay

Abstract

Retail prices for a product vary across time and places. The sources that drive price dispersion can be grouped into three categories: (i) price differences across markets, (ii) price differences across stores in a market, and (iii) within-store price variation over time. I find there is price dispersion in the retail market in Uruguay. The decomposition shows that 39.16 percent is across-markets, 36.90 percent corresponds to across-store, and 23.94 percent over time. These results highlight the relevance of intertemporal pricing strategies of chains and how they set prices at the local market to understand price dispersion. Nevertheless, across-market price dispersion has been increasing in recent years, which can imply a structural change in price dispersion sources. The price dispersion phenomenon and its decomposition are heterogeneous. I find differences in price dispersion and the sources behind it across products, stores, and over time.