DP10771 Information and Price Dispersion: Theory and Evidence

Author(s): Dieter Pennerstorfer, Philipp Schmidt-Dengler, Nicolas Schutz, Christoph Weiss, Biliana Yontcheva
Publication Date: August 2015
Keyword(s): commuter data, price dispersion, retail gasoline, search
JEL(s): D43, D83, L13
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10771

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.