A single espresso, please! Rationalizing espresso price dispersion across Italian cities

This paper aims at providing an explanation of the observed espresso price dispersion across major Italian cities. We present some preliminary empirical evidence that suggests a positive relationships between the average espresso price in a city and the number of coffee shops (normalized for the adult population) operating in that city. The finding is shown to be robust after controlling for GDP per capita and consumers’ price index. We provide an interpretation of the empirical findings relying on a model of price competition where firms adjust the mark-up to offset the negative effect of any increase in their number.