Information and price dispersion: Theory and Evidence

Author(s)
Dieter Pennerstorfer, Philipp Schmidt-Dengler, Nicolas Schutz, Christoph Weiss, Biliana Yontcheva
Abstract

Limited information is the key element generating price dispersion in models of homogeneous-goods markets. We show that the global relationship between information and price dispersion is an inverse-U shape. We test this mechanism for the retail gasoline market using a new measure of information based on commuter data from Austria. Commuters sample gasoline prices on their commuting route, providing us with spatial variation in the share of informed consumers. Our empirical estimates are in line with the theoretical predictions. We also quantify how information affects average prices paid and the distribution of surplus in the gasoline market.

Organisation(s)
Department of Economics
External organisation(s)
Universität Mannheim, Wirtschaftsuniversität Wien (WU), Johannes Kepler Universität Linz, Centre for Economic and Policy Research, Österreichisches Institut für Wirtschaftsforschung (WIFO)
Journal
International Economic Review
Volume
61
Pages
871-899
No. of pages
29
ISSN
0020-6598
DOI
https://doi.org/10.1111/iere.12443
Publication date
01-2019
Peer reviewed
Yes
Austrian Fields of Science 2012
502021 Microeconomics
Keywords
ASJC Scopus subject areas
Economics and Econometrics
Portal url
https://ucris.univie.ac.at/portal/en/publications/information-and-price-dispersion-theory-and-evidence(1758460e-3697-48d8-b2f4-2e10dfc549ed).html