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The Heterogeneous Effects of Entry on Prices

Author

Listed:
  • Kai Fischer
  • Simon Martin
  • Philipp Schmidt-Dengler

Abstract

We study the effect of entry on the price distribution in the German retail gasoline market. Exploiting more than 700 entries over five years in an event study design, we find that entry causes a persistent first-order stochastic shift in the price distribution. Prices at the top of the distribution change moderately only, but prices at the left tail decrease by up to 12% of stations’ gross margins. Consumers with easy access to information on prices gain the most from entry. The reduction in transaction prices is 32-44% stronger for fully informed consumers than for uninformed consumers.

Suggested Citation

  • Kai Fischer & Simon Martin & Philipp Schmidt-Dengler, 2023. "The Heterogeneous Effects of Entry on Prices," CESifo Working Paper Series 10566, CESifo.
    • Handle: RePEc:ces:ceswps:_10566
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp10566.pdf
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    Cited by:

    1. Henning Hermes & Marina Krauß & Philipp Lergetporer & Frauke Peter & Simon Wiederhold, 2022. "Early Child Care, Maternal Labor Supply, and Gender Equality: A Randomized Controlled Trial," CESifo Working Paper Series 10178, CESifo.
    2. repec:bav:wpaper:225_hermesetal is not listed on IDEAS

    More about this item

    Keywords

    entry; information frictions; price distribution; (unconditional) quantile treatment effects;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • R32 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Other Spatial Production and Pricing Analysis

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