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Search and equilibrium prices: Theory and evidence from retail diesel

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  • Cabral, Luís M. B.
  • Schober, Dominik
  • Woll, Oliver

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.

Suggested Citation

  • Cabral, Luís M. B. & Schober, Dominik & Woll, Oliver, 2019. "Search and equilibrium prices: Theory and evidence from retail diesel," ZEW Discussion Papers 19-018, ZEW - Leibniz Centre for European Economic Research.
    • Handle: RePEc:zbw:zewdip:19018
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    References listed on IDEAS

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    Cited by:

    1. Cabral, Luis & Duerr, Niklas & Schober, Dominik & Woll, Oliver, 2021. "Price Matching Guarantees and Collusion: Theory and Evidence from Germany," CEPR Discussion Papers 15823, C.E.P.R. Discussion Papers.
    2. Martin, Simon, 2020. "Market transparency and consumer search - Evidence from the German retail gasoline market," DICE Discussion Papers 350, Heinrich Heine University Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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    More about this item

    Keywords

    Collusion; Cartelization; Fuel Retailing; Search; Competitive Intensity;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • L4 - Industrial Organization - - Antitrust Issues and Policies
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • L9 - Industrial Organization - - Industry Studies: Transportation and Utilities

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