Information and price dispersion: Theory and Evidence

Dieter Pennerstorfer, Philipp Schmidt-Dengler, Nicolas Schutz, Christoph Weiss, Biliana Yontcheva

Publications: Contribution to journalArticlePeer Reviewed

Abstract

Limited information is the key element generating price dispersion in models of homogeneous-goods markets. We show that the global relationship between information and price dispersion is an inverse-U shape. We test this mechanism for the retail gasoline market using a new measure of information based on commuter data from Austria. Commuters sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. Our empirical estimates are in line with the theoretical predictions. We also quantify how information affects average prices paid and the distribution of surplus in the gasoline market.

Original languageEnglish
Pages (from-to)871-899
Number of pages29
JournalInternational Economic Review
Volume61
Issue number2
Early online date20 Jan 2019
DOIs
Publication statusPublished - May 2020

Austrian Fields of Science 2012

  • 502021 Microeconomics

Keywords

  • CMI
  • Cat2
  • CONSUMER SEARCH
  • IMPACT
  • INTERNET
  • RETAIL GASOLINE
  • COMPETITION
  • MARKETS
  • PERSISTENCE
  • SEQUENTIAL SEARCH
  • EMPIRICAL-EVIDENCE
  • ECONOMICS

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