Full Citation
Title: The Unequal Gains from Product Innovations: Evidence from the U.S. Retail Sector
Citation Type: Journal Article
Publication Year: 2019
ISBN:
ISSN: 0033-5533
DOI: 10.1093/qje/qjy031
NSFID:
PMCID:
PMID:
Abstract: This article examines how product innovations led to inflation inequality in the United States from 2004 to 2015. Using scanner data from the retail sector, I find that annual inflation for retail products was 0.661 (std. err. 0.0535) percentage points higher for the bottom income quintile relative to the top income quintile. When including changes in product variety over time, this difference increases to 0.8846 (std. err. 0.0739) percentage points a year. In CEX-CPI data covering the full consumption basket, the annual inflation difference is 0.368 (std. err. 0.0502) percentage points. I investigate the following hypothesis: (i) the relative demand for products consumed by high-income households increased because of growth and rising inequality; (ii) in response, firms introduced more new products catering to such households; (iii) as a result, the prices of continuing products in these market segments fell due to increased competitive pressure. Using a shift-share research design, I find causal evidence that increasing relative demand leads to increasing product variety and lower inflation for continuing products. A calibration indicates that the hypothesized channel accounts for a large fraction (over 50%) of observed inflation inequality.
Url: https://academic.oup.com/qje/article/134/2/715/5230867
User Submitted?: No
Authors: Jaravel, Xavier
Periodical (Full): The Quarterly Journal of Economics
Issue: 2
Volume: 134
Pages: 715-783
Data Collections: IPUMS USA
Topics: Labor Force and Occupational Structure
Countries: United States