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  5. Local Retail Prices, Product Variety and Neighborhood Change

Local Retail Prices, Product Variety and Neighborhood Change

  • Fernando Borraz
  • Felipe Carozzi
  • Nicolás González-Pampillón
  • Leandro Zipitría
American Economic Journal: Economic Policy (Forthcoming)

Abstract

We study how local grocery markets within a city are affected by changes in housing markets. Our empirical strategy exploits a shift in the spatial distribution of construction activity induced by a large-scale, place-based tax exemption in the city of Montevideo. The introduction of new housing stock induced by the policy causes a reduction in grocery prices of 2.3%, and an increase in locally available product varieties. Using insights from a multiproduct model of imperfect competition and estimates for different types of stores, we show these changes are the result of incumbents’ response to an increase in local demand.

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