Publication: Million Dollar Plants and Retail Prices
Date
2022-04
ISSN
Published
2022-04
Author(s)
Bhardwaj, Abhishek
Ghose, Devaki
Mukherjee, Saptarshi
Singh, Manpreet
Abstract
This paper studies how the opening of
a Million Dollar Plant (MDP) affects income inequality, by
focusing on a new mechanism: retail inflation. Using
detailed barcode-level prices, the paper shows that local
barcode-level prices increased in winning counties compared
to runner up counties after a MDP enters. The paper further
shows that households in winning counties spend less time
shopping for deals and discounts and more time on work.
Wages also go up in winning counties, but only for
high-skilled workers. The paper builds a model of
monopolistic firms with variable mark-ups and non-homothetic
consumer preferences. Consumers become less price sensitive
as they substitute shopping time for more working time in
response to rising labor demand generated by the entry of a
MDP, and firms respond to less elastic consumer demand by
raising their mark-ups. Analysis using the model and
detailed reduced form evidence shows that establishing a MDP
only increases wages of certain high-skilled workers, but it
increases overall county-level prices, thus creating larger
increases in income inequality in winning counties compared
to runner-up counties.
Citation
“Bhardwaj, Abhishek; Ghose, Devaki; Mukherjee, Saptarshi; Singh, Manpreet. 2022. Million Dollar Plants and Retail Prices. Policy Research Working Paper;9995. © World Bank, Washington, DC. http://openknowledge.worldbank.org/entities/publication/acb6350d-8018-5eb3-99f1-8ff4483ec6cd License: CC BY 3.0 IGO.”
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