Consumer and Competitor Reactions: Evidence from a Field Experiment

41 Pages Posted: 12 Nov 2004

See all articles by John Barron

John Barron

Purdue University - Department of Economics

John R. Umbeck

Purdue University - Department of Economics

Glen R. Waddell

University of Oregon - Department of Economics; Institute for the Study of Labor (IZA)

Date Written: February 6, 2007

Abstract

In response to a price change by a single seller, it is common for the density of sellers in the market to influence both the quantity response of consumers and the price response of other sellers. Using field experiment data collected around a series of exogenously imposed price changes we find that an individual retailer with a larger number of competitors faces a more-responsive demand. This finding is fundamental to a predicted inverse relationship between market prices and the number of competitors. We also examine the reaction of rival stations to exogenous price changes, and find that the magnitude of a competitor's response is inversely related to the density of stations in the market.

Keywords: Product differentiation, number of sellers, retail gasoline markets, price elasticity of demand, field experiment, competitor reaction

JEL Classification: D43, L13, D83

Suggested Citation

Barron, John M. and Umbeck, John R. and Waddell, Glen R., Consumer and Competitor Reactions: Evidence from a Field Experiment (February 6, 2007). Available at SSRN: https://ssrn.com/abstract=616761 or http://dx.doi.org/10.2139/ssrn.616761

John M. Barron

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States
765-494-4451 (Phone)
765-494-9658 (Fax)

John R. Umbeck

Purdue University - Department of Economics ( email )

West Lafayette, IN 47907-1310
United States

Glen R. Waddell (Contact Author)

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States
541-346-1259 (Phone)
541-346-1243 (Fax)

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

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