Retail Prices in a City

Alon Eizenberg, Saul Lach, Merav Oren-Yiftach*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

5 Scopus citations


This study examines grocery price differentials across neighbor hoods in a large metropolitan area (the city of Jerusalem, Israel). Important variation in access to affordable grocery shopping is documented using CPI data on prices and neighborhood-level credit card expenditure data. Residents of peripheral, nonaffluent neighborhoods are charged some of the highest prices in the city and yet display a low tendency to shop outside their neighborhood. In contrast, residents of affluent, centrally located neighborhoods often benefit from lower grocery prices charged in their own neighborhood while also displaying a high propensity to shop at the hard discount grocers located in the city’s commercial districts. The role of spatial frictions in shaping these patterns is studied within a structural model where households determine their shopping destination and retailers choose prices. The estimated model implies strong spatial segmentation in households’ demand. Counterfactual analyses reveal that alleviating spatial frictions results in considerable benefits to the average resident of the peripheral neighborhoods. At the same time, it barely affects the equilibrium prices charged across the city, and so it does little to benefit households with limited mobility (e.g., the elderly).

Original languageAmerican English
Pages (from-to)175-206
Number of pages32
JournalAmerican Economic Journal: Economic Policy
Issue number2
StatePublished - May 2021

Bibliographical note

Funding Information:
* Eizenberg: Department of Economics, The Hebrew University of Jerusalem, Jerusalem 91905, Israel, and CEPR (email:; Lach: Department of Economics, The Hebrew University of Jerusalem, Jerusalem 91905, Israel, and CEPR (email:; Oren-Yiftach: Israel Central Bureau of Statistics, 66 Kanfei Nesharim Street, P.O.B 34525, Jerusalem 9546456, Israel (email: meravo@cbs. Matthew Shapiro was coeditor for this article. We are grateful to anonymous referees for comments and suggestions that greatly improved the paper. We thank Eyal Meharian and Irit Mishali for their invaluable help with collecting the price data and with the provision of the geographic (distance) data. We also wish to thank a credit card company for graciously providing the expenditure data. We are also grateful to Daniel Felsenstein for providing the housing price data and to Elka Gotfryd for mapping zip codes into statistical subquarters. We thank Steve Berry, Pierre Dubois, Phil Haile, JF Houde, Gaston Illanes, Volker Nocke, Kathleen Nosal, Mark Rysman, Katja Seim, Avi Simhon, Konrad Stahl, Yuya Takashi, Ali Yurukoglu, and Christine Zulehner for helpful comments as well as seminar participants at University Carlos III of Madrid, CEMFI, DIW Berlin, Goethe University Frankfurt, Harvard University, Johns Hopkins University, Pennsylvania State University, Universidad de Vigo, University of Virginia, Yale University, and Wharton School of the University of Pennsylvania, and participants at the Israeli IO day (2014), EARIE (2014), the Economic Workshop at IDC (2015), UTDT Conference (2016), CEPR-JIE IO Conference (2017), and IIOC (2017). This project was supported by the Israeli Science Foundation (ISF) grant 858/11, by the Wolfson Family Charitable Trust, and by the Maurice Falk Institute for Economic Research in Israel.

Publisher Copyright:
© 2021,American Economic Journal: Economic Policy. All Rights Reserved.


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