Price Transparency Against Market Power

Abstract

We study under what conditions mandatory price disclosure is pro- or anticompetitive. Using a theoretical search model with collusion and imperfectly informed consumers and producers, we characterise the circumstances under which increasing price transparency benefits consumers. We show that the level of ex ante consumer and producer transparency, as well as the number of consumers adopting the mandatory price information, determine whether the policy is pro- or anticompetitive. To examine the theoretical predictions, we construct a unique data set to study the effect of mandatory price disclosure in the German petrol market. We find that the policy led to a decrease in retail margins by 13 percent. We also find that theoretical models with sequentially searching uninformed consumers are better at explaining the empirical evidence than other models in the literature. Our results inform policymakers by highlighting how the effect of mandatory price disclosure depends on market characteristics.

Keywords: Mandatory Price Disclosure, Consumer Search, Competition, Coordination

JEL Classification: D22, D43, D83, L12, L41