Title: Is new economic geography right?
Description: "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"--National Bureau of Economic Research web site.