Limited access Past event

School of Economics and Finance Seminar Fading Choice: Transport Costs and Variety in Consumer Goods

Speaker: Professor Pramila Krishnan, University of Oxford

Abstract: We examine the spatial variation in various manufactured consumer goods to study how choice fades across space. We use data on 132 consumer goods and over 800 brands available from a purpose-designed survey of fixed shops and periodic market stalls in towns and villages in Ethiopia. We find that local consumer choice fades with fewer varieties in remoter villages relative to their closest market town, while variety increases with inequality and market size. A half-hour travel-time fall is associated with five extra goods and ten brands. Furthermore, we estimate a model of heterogenous consumers with a preference for variety and monopolistically-competitive traders to disentangle the role of transport costs from the taste for variety and to assess the consequences for prices. Our model estimates suggest that local consumer prices contain a 10-14% mark-up above source town prices and transport costs. These estimates hide considerable heterogeneity in mark-ups across categories of goods, with higher mark-ups in categories such as footwear and fabric of 20% and 32%, respectively, further affecting local choice.

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