Price Heterogeneity and Consumption Inequality


Using the Nielsen Consumer Panel, we document the presence of price heterogeneity in the United States. Poor households pay lower prices for the same products, mostly because they shop more frequently and spend more at discount stores. However, we also find that price heterogeneity has a very small impact on the measurement of consumption inequality. Adjusting nominal household expenditures by imposing the assumption that all products have the same price does not appreciably reduce consumption inequality. Finally, we decompose our inequality measure into two factors, measuring differences in the composition and size of consumption baskets. We find that variations in composition and quantity are both very important in explaining consumption inequality.