Asymmetric Price Effects of Competition

39 Pages Posted: 2 Mar 2015

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 2 versions of this paper

Date Written: March 2015

Abstract

In markets where price dispersion is prevalent the relevant question is not what happens to the price when the number of firms changes but, instead, what happens to the whole distribution of equilibrium prices. Using data from the gasoline market in the Netherlands, we find, first, that markets with a given number of competitors have price distributions that first-order stochastically dominate the corresponding price distributions in markets with one more firm. Second, the competitive response varies along the price distribution and is stronger at prices in the medium to upper part of the distribution. Finally, consumer gains from competition depend on how well informed they are and turn out to be larger for relatively attentive consumers. To account for these empirical results, we propose a generalisation of Varian's (1980) well-known model of sales that allows for richer heterogeneity in consumer price information.

Keywords: distribution of price information, number of competitors, price dispersion

JEL Classification: D43, D83, L13

Suggested Citation

Lach, Saul and Moraga-Gonzalez, Jose Luis, Asymmetric Price Effects of Competition (March 2015). CEPR Discussion Paper No. DP10456, Available at SSRN: https://ssrn.com/abstract=2572454

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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