Journal of Economics and Public Finance ISSN 2377-1038 (Print) ISSN 2377-1046 (Online) Vol. 7, No. 4, 2021 www.scholink.org/ojs/index.php/jepf 1 Original Paper The Price Dispersion of Consumer Products Joachim Kaldasch 1* & Antonios Koursovitis 1 1 International School of Management, Hauptstraße 27, 10827 Berlin, Germany * Joachim Kaldasch, E-mail: joachim.kaldasch@international-businness-school.de Received: May 29, 2021 Accepted: June 11, 2021 Online Published: June 19, 2021 doi:10.22158/jepf.v7n4p1 URL: http://dx.doi.org/10.22158/jepf.v7n4p1 Abstract Presented is an analytic dynamic model of the price dispersion of consumer products. The theory is based on the idea that sellers offer product units for a profit maximizing price, denoted p m . Product units not sold at p m are called excess units. Based on the conservation equation of offered units, it can be shown that the stationary price distribution of consumer products consists of a Dirac-delta peak at p m surrounded by a fat-tailed Laplace distribution from the excess units. A good quantitative agreement with empirical data can be obtained with a fit of the two free parameters of the theory. Keywords consumer products, market dynamics, price, price dispersion, Laplace distribution 1. Introduction A consumer product can be defined as an item that serves as a solution to a specific consumer problem having the same features. A consumer good is a collection of consumer products. Based on the idea that both, the demand and the supply side of a market can take advantage of arbitrage opportunities, the neo-classic microeconomic theory suggests that a product must sell for the same price, known as “the law of one price” (Hens & Rieger, 2010). However, even for consumer products, empirical investigations show the existence of a price dispersion (Eden, 2014). Economists give four popular explanations for the existence of a price dispersion: amenities, heterogeneous costs, intertemporal price discrimination and search frictions. The first explanation suggests that identical products sell at different prices because they are bundled with different amenities in different transactions (Sorensen, 2000). The second states that firms at different locations have different costs causing prices to vary for similar goods (Golosov & Lucas, 2007). Time dependent fluctuations of the price in order to satisfy different consumer groups (Conlisk et al., 1984; Sobel, 1984; Klenow and Malin, 2010; Albrecht et al., 2013) and the limited ability of buyers to search the entire market (Butters, 1977; Varian, 1980, Burdett & Judd, 1983).