Asymmetric Price Effects of Competition

Saul Lach and Moraga-González, José-Luis
Authors registered in the RePEc Author Service: Jose Luis Moraga-Gonzalez

No 10456, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In markets where price dispersion is prevalent the relevant question is not what happens to the price when the number of firms changes but, instead, what happens to the whole distribution of equilibrium prices. Using data from the gasoline market in the Netherlands, we find, first, that markets with a given number of competitors have price distributions that first-order stochastically dominate the corresponding price distributions in markets with one more firm. Second, the competitive response varies along the price distribution and is stronger at prices in the medium to upper part of the distribution. Finally, simulations of the consumer gains from competition reveal that they depend on how well informed consumers are and would be larger for relatively attentive consumers. A generalisation of Varian's (1980) model allowing for richer heterogeneity in consumer price information along the lines of Burdett and Judd's (1983) model can account for these empirical patterns.

Keywords: Distribution of price information; Number of competitors; Price dispersion (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Date: 2015-03
New Economics Papers: this item is included in nep-com, nep-ind, nep-mfd and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Asymmetric Price Effects of Competition (2017)
Working Paper: Asymmetric price effects of competition (2009)
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