Asymmetric Price Effects of Competition

67 Pages Posted: 15 Jul 2009

See all articles by Saul Lach

Saul Lach

Hebrew University of Jerusalem - Department of Economics; CEPR

José L. Moraga-González

VU University Amsterdam; University of Groningen

Multiple version iconThere are 3 versions of this paper

Date Written: June 2009

Abstract

This paper examines how the distribution of prices changes with the number of competitors in the market. Using gasoline price data from the Netherlands we find that as competition increases, the distribution of prices spreads out: the low prices go down while the high prices go up, on average. As a result, competition has an asymmetric effect on prices. These findings, which are consistent with a theoretical model where consumers differ in the information they have about prices, imply that consumers' gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, benefit from an increase in the number of gas stations. The magnitude of the welfare gain, however, is greater for those consumers that are aware of more prices. We conclude that an increase in the number of gas stations has a positive but unequal effect on the welfare of consumers in the Netherlands.

Keywords: gasoline prices, imperfect information, number of firms, price distribution

JEL Classification: L1

Suggested Citation

Lach, Saul and Moraga-Gonzalez, Jose Luis, Asymmetric Price Effects of Competition (June 2009). CEPR Discussion Paper No. DP7319, Available at SSRN: https://ssrn.com/abstract=1433915

Saul Lach (Contact Author)

Hebrew University of Jerusalem - Department of Economics ( email )

Mount Scopus
Jerusalem, 91905
Israel
+972 2 588 3253 (Phone)
+972 2 581 6071 (Fax)

HOME PAGE: http://economics.huji.ac.il/facultye/saul/saul.html

CEPR

London
United Kingdom

Jose Luis Moraga-Gonzalez

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

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