A study on behavioral dynamics of relative prices and retail market integration

2004 Fiscal Year Final Research Report Summary

• Project/Area Number: 14530039
• Research Category: Grant-in-Aid for Scientific Research (C)
• Allocation Type: Single-year Grants
• Section: 一般
• Research Field: 経済政策(含経済事情)
• Research Institution: University of Tsukuba (2003-2004); Otaru University of Commerce (2002)
• Principal Investigator: FUJII Eiji University of Tsukuba, Graduate School of Systems and Information Engineering, Associate Professor, 大学院・システム情報工学研究科, 助教授 (20321961)
• Project Period (FY): 2002 – 2004
• Keywords: relative price / market integration

Research Abstract

In this project, we have analyzed the behavioral dynamics of retail and consumer prices of 47 cities throughout Japan. The main purpose of our analysis is to examine whether the geographically separated retail markets are forming a single integrated Japanese market, or do they remain segmented by tangible and intangible market frictions such as transport cost that exit within the country. Specifically, we have compiled the data of retail prices of various consumer goods and services for the period of 1975-2000, and analyzed the behavioral dynamics of their relative prices across the 49 cities. The primary empirical findings can be summarized as follows : (1)the cross-city relative consumer price at the aggregate level (i.e.relative consumer price indices) are mostly found to be non-stationary, implying that the relative purchasing power parity across cities in Japan is not holding when prices of services are included ; (2)the behavioral dynamics, especially the persistence property, of the relative prices varies quite substantially across goods and services ; (3)while there are goods that exhibit an increasing degree of retail market integration, there are a substantial number of products whose price dispersion has been increasing ; (4)while the rate at which city-specific price shocks decay varies by goods and services and is determined partly by cross-city physical distance, much remains unexplained. All in all, these results suggest that retail market within Japan is not characterized as an integrated whole that involves all types of consumer goods or all local markets that are physically separated within the domain. In other words, for some goods and cities, the retail market within Japan remains segmented.