Search and Equilibrium Prices: Theory and Evidence from Retail Diesel

30 Pages Posted: 23 May 2019

See all articles by Luis M. B. Cabral

Luis M. B. Cabral

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR)

Dominik Schober

ZEW – Leibniz Centre for European Economic Research

Oliver Woll

ZEW – Leibniz Centre for European Economic Research - Competition and Regulation Research Group

Multiple version iconThere are 2 versions of this paper

Date Written: March 27, 2019

Abstract

We examine the relation between consumer search and equilibrium prices when collusion is endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a €.025/liter price variation due to the variation in the measure of searchers.

Keywords: Collusion, Cartelization, Fuel Retailing, Search, Competitive Intensity

JEL Classification: L1, L4, L5, L9

Suggested Citation

Cabral, Luis M. B. and Schober, Dominik and Woll, Oliver, Search and Equilibrium Prices: Theory and Evidence from Retail Diesel (March 27, 2019). ZEW - Centre for European Economic Research Discussion Paper No. 19-018. Available at SSRN: https://ssrn.com/abstract=3392849 or http://dx.doi.org/10.2139/ssrn.3392849

Luis M. B. Cabral (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business - Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States
212-998-0858 (Phone)
212-998-4218 (Fax)

HOME PAGE: http://www.stern.nyu.edu/~lcabral

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Dominik Schober

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Oliver Woll

ZEW – Leibniz Centre for European Economic Research - Competition and Regulation Research Group ( email )

L7,1
Mannheim, 68161
Germany

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