The determinants of consumer price dispersion: Evidence from French supermarkets (with Patrick Sevestre and Jonathan Thebault)

Abstract:
We characterize the dispersion of grocery prices in France based on a large original data set of prices in more than 1500 supermarkets across the country. On average across products, the 90th percentile of relative prices is 17% higher than the 10th. The mean absolute deviation from quarterly average product prices is 5% on average in the French retail sector and the standard deviation of relative prices is 7%. We show that temporary sales and promotions explain only little of the observed price dispersion, while the permanent component of price dispersion largely dominates. Indeed, in France price dispersion across stores essentially results from persistent heterogeneity in retail chains’ national pricing. Consumer prices are largely determined at a national level by retail groups’ bargaining power with producers and retail chains’ positioning. We also show, however, that local conditions regarding demand or local competition between supermarkets do explain observed prices on local markets, though to a much lower extent.