Exaggerated Death of Distance: Revisiting Distance Effects on Regional Price Dispersions

Abstract

This paper empirically establishes the signicant roles of transport costs in price dispersions across regions. We identify and estimate the iceberg-type distance-elastic transport costs as a parameter of a structural model of cross-regional price dierentials featuring product delivery decisions. Utilizing a data set of wholesale prices and product delivery patterns of agricultural products in Japan, our structural estimation approach nds large distance elasticities of the transport costs. The result conrms that geographical barriers are an economically signicant contributor to the failures of the law of one price.