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The Internet, Search, and Asymmetric Pricing: A Natural Experiment in Retail Gasoline

15 Pages Posted: 17 Nov 2014  

David P. Byrne

University of Melbourne

Nicolas de Roos

University of Sydney

Daniel Tiong

University of Melbourne

Date Written: November 16, 2014

Abstract

How does the Internet effect retail pricing? In contrast to previous empirical research that focuses on price dispersion and static margins, this paper examines how the Internet and web-based price clearing houses effect dynamic asymmetric pricing adjustment (e.g., "rockets and feathers"). We exploit a unique policy intervention in the context of the retail gasoline market that introduced a price clearinghouse in some markets but not others. We find stark evidence that the policy eliminated asymmetric price adjustment and increase the rate of passthrough of falling costs to retail prices. These results support search-based explanations for asymmetric price adjustment.

Keywords: Internet, price clearinghouse, search, asymmetric price adjustment, error correction model, retail gasoline

JEL Classification: L11, L9, D22

Suggested Citation

Byrne, David P. and de Roos, Nicolas and Tiong, Daniel, The Internet, Search, and Asymmetric Pricing: A Natural Experiment in Retail Gasoline (November 16, 2014). Available at SSRN: https://ssrn.com/abstract=2525085 or http://dx.doi.org/10.2139/ssrn.2525085

David P. Byrne (Contact Author)

University of Melbourne ( email )

185 Pelham Street, Carlton, Victoria 3053
Melbourne, Victoria 3010
Australia

HOME PAGE: http://www.economics.unimelb.edu.au/

Nicolas De Roos

University of Sydney ( email )

University of Sydney
Sydney NSW 2006, NC
Australia

Daniel Tiong

University of Melbourne ( email )

185 Pelham Street, Carlton, Victoria 3053
Melbourne, Victoria 3010
Australia

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