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Information And Price Dispersion: Theory And Evidence

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  • 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.

Suggested Citation

  • Dieter Pennerstorfer & Philipp Schmidt‐Dengler & Nicolas Schutz & Christoph Weiss & Biliana Yontcheva, 2020. "Information And Price Dispersion: Theory And Evidence," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 871-899, May.
    • Handle: RePEc:wly:iecrev:v:61:y:2020:i:2:p:871-899
    DOI: 10.1111/iere.12443
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    More about this item

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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