RT Web Page DB /z-wcorg/ DS http://worldcat.org ID 728638137 LA English UL http://papers.nber.org/papers/w17067 T1 Is new economic geography right? : evidence from price data A1 Handbury, Jessie., Weinstein, David E., National Bureau of Economic Research., PB National Bureau of Economic Research PP Cambridge, Mass. YR 2011 AB The agglomeration force behind the New Economic Geography literature initiated by Krugman is based on the notion that larger markets should have a lower variety adjusted price index. Despite his Nobel Prize, there have been no tests of this idea. This paper represents the first such test. Using a rich dataset covering 10-20 million purchases of grocery items, we find that after controlling for store and shopping effects: 1) Aggregate grocery prices are lower in larger cities; 2) Residents of larger cities have access to substantially more varieties than residents of smaller cities; and 3) These forces combine to substantially lower variety adjusted prices in large cities. In short, Krugman was right.