Information and Price Dispersion: Theory and Evidence
63 Pages Posted: 18 Aug 2015
Date Written: August 2015
We examine the relationship between information and price dispersion in the retail gasoline market. We first show that the clearinghouse models in the spirit of Stahl (1989) generate an inverted-U relationship between information and price dispersion. We construct a new measure of information based on precise commuter data from Austria. Regular commuters can freely sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. We use detailed information on gas station level prices to construct price dispersion measures. Our empirical estimates of the relationship are in line with the theoretical predictions.
Keywords: commuter data, price dispersion, retail gasoline, search
JEL Classification: D43, D83, L13
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