Price response, information, and asymmetry of price dispersion

Bongseok Choi, Donghun Kim and Hong Chong Cho

Applied Economics, 2019, vol. 51, issue 39, 4270-4281

Abstract: In this study, we examine how differently gasoline prices in 25 regions of Seoul, Korea respond to asymmetric information between retailers and consumers. We estimate the region-specific likelihood that retailers engage in price undercutting under asymmetric information and investigate inter-regional differences. We find that in response to increases in wholesale price, regions with a high likelihood of price undercutting experience intensified gas station price competition while dispersions of price and markups tend to decrease more in response to cost shocks. Understanding the geographical dispersion of retailers’ price responses to information frictions and search intensity is crucial to lowering information barriers across regions and redistributing profit among market participants.

Date: 2019
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DOI: 10.1080/00036846.2019.1591600

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