Are they always offering the lowest price? An empirical analysis of the persistence of price dispersion in a low inflation environment

We study the existence of price distributions and the intra-distribution dynamics for 10 food products across 131 retail stores in Germany for a time period of 43 weeks. Based upon Varian's (1980) model of sales, we aim at investigating whether the position of stores within the cross-sectional price distribution is persistent or changes over time (mixed-strategy equilibrium). Our results suggest a substantial degree of price dispersion even after controlling for unobserved store heterogeneity. Despite some intra-distribution dynamics, we find evidence for a persistence of stores in the cross-sectional price distribution over time. Copyright © 2007 John Wiley & Sons, Ltd.