Price Dispersion and Informational Frictions: Evidence From Supermarket Purchases

Pierre Dubois and Helena Perrone ()

CRC TR 224 Discussion Paper Series from University of Bonn and University of Mannheim, Germany

Abstract: Traditional demand models assume that consumers are perfectly informed about product characteristics, including price. However, this assumption may be too strong. Unannounced sales are a common supermarket practice. As we show, retailers frequently change position in the price rankings, thus making it unlikely that consumers are aware of all deals o¤ered in each period. Further empirical evidence on consumer behavior is also consistent with a model with price information frictions. We develop such a model for horizontally di¤erentiated products and structurally estimate the search cost distribution. The results show that in equilibrium, consumers observe a very limited number of prices before making a purchase decision, which implies that imperfect information is indeed important and that local market power is potentially high. We also show that a full information demand model yields severely biased price elasticities.

Keywords: imperfect information; price dispersion; sales; search costs; product differentiation; consumer behavior; demand estimation; price elasticities (search for similar items in EconPapers)
JEL-codes: D4 D83 L11 L66 (search for similar items in EconPapers)
Pages: 35
Date: 2018-10
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases (2017)
Working Paper: Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:bon:boncrc:crctr224_2018_047

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