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Million Dollar Plants and Retail Prices

Author

Listed:
  • Bhardwaj,Abhishek
  • Ghose,Devaki
  • Mukherjee,Saptarshi
  • Singh,Manpreet
Abstract
This paper studies how the opening of a Million Dollar Plant (MDP) affects income inequality, byfocusing on a new mechanism: retail inflation. Using detailed barcode-level prices, the paper shows that localbarcode-level prices increased in winning counties compared to runner up counties after a MDP enters. The paper furthershows 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 ofmonopolistic firms with variable mark-ups and non-homothetic consumer preferences. Consumers become less price sensitiveas they substitute shopping time for more working time in response to rising labor demand generated by the entry of aMDP, and firms respond to less elastic consumer demand by raising their mark-ups. Analysis using the model anddetailed reduced form evidence shows that establishing a MDP only increases wages of certain high-skilled workers, but itincreases overall county-level prices, thus creating larger increases in income inequality in winning counties comparedto runner-up counties.

Suggested Citation

  • Bhardwaj,Abhishek & Ghose,Devaki & Mukherjee,Saptarshi & Singh,Manpreet, 2022. "Million Dollar Plants and Retail Prices," Policy Research Working Paper Series 9995, The World Bank.
    • Handle: RePEc:wbk:wbrwps:9995
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