Local Retail Prices, Product Varieties and Neighborhood Change

Produced by: 
Banco Central del Uruguay
Available from: 
August 2021
Paper author(s): 
Fernando Borraz
Felipe Carozzi
Nicolás González-Pampillón
Leandro Zipitría
Financial Economics
Microeconomics - Competition - Productivity

We study how retail prices within a city are affected by changes in local housing markets. Our empirical strategy is based on an exogenous shift in the spatial distribution of the construction activity induced by a large-scale, place-based tax exemption in the city of Montevideo. We provide differences-in-differences and instrumental variable estimates showing that the price of retail goods decreases in areas within the city that experience more residential development. We use a multi-product model of imperfect competition to relate this change to an expansion in either product varieties or firm entry. We report evidence in support of the varieties channel, with new development causing an increase in the number of varieties available locally. Our results have implications for urban planning policy and the broader discussion about winners and losers from neighborhood change.


Research section: 
Latest Research
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