COMMITTEE CHAIR: Dr. Erick Kitenge

TITLE: BILATERAL DETERMINANTS OF PRICE CONVERGENCE AND DIVERGENCE ACROSS U.S. METROPOLITAN AREAS

ABSTRACT: This dissertation will examine the bilateral determinants of price convergence and divergence across U.S. metropolitan areas, with a particular focus on how location-pair characteristics shape the speed and persistence of price adjustments over time. While prior studies on market integration have primarily emphasized systemic shocks, such as recessions and monetary policy changes, or product-specific characteristics such as tradability and perishability, they have largely treated location-specific heterogeneity as a nuisance through the use of fixed effects. This dissertation departs from that approach by explicitly examining bilateral factors linking metropolitan areas, including geographic distance, shared state boundaries, income differentials, and interstate highway connectivity, as substantive determinants of price convergence. Using quarterly data from the Cost of Living Index (COLI) covering approximately 200–270 U.S. metropolitan areas, the study will construct bilateral metro pairs and analyze absolute price gaps across major expenditure categories, including housing, groceries, transportation, healthcare, and miscellaneous goods and services. The analysis will employ dyadic panel econometric models with time fixed effects to estimate how bilateral characteristics influence both the degree and speed of convergence. Robustness checks, including alternative convergence specifications and Poisson pseudo-maximum likelihood estimation, will further strengthen the empirical analysis. Beyond the conventional interpretation of convergence as evidence of efficient market integration, this dissertation will also examine persistent or widening price gaps as economically meaningful structural outcomes. Rather than viewing divergence solely as market failure, the study will investigate conditions under which persistent price differentials create opportunities for geographic arbitrage, regional pricing strategies, and market positioning. Expected findings suggest that same-state status and stronger transportation connectivity will accelerate convergence by reducing regulatory and logistical frictions, whereas larger income differentials may sustain persistent price gaps, particularly in housing markets. By reframing bilateral location characteristics as central objects of inquiry, this dissertation will contribute to the literature on domestic market integration while offering practical insights for policymakers and businesses seeking to understand regional pricing dynamics and strategic market opportunities.

Keywords: Price Convergence, Market Integration, Spatial Economics,  Regional Pricing Strategy, Geographic Arbitrage

Zoom Link:

https://pvpanther.zoom.us/j/94370460503?pwd=eWtiMDlNTDRmbVBLZlNVa0JzOE4wUT09