Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases

Pierre Dubois and Helena Perrone

No 15-606, TSE Working Papers from Toulouse School of Economics (TSE)

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 offered 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 differentiated 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 dif- ferentiation; consumer behavior; demand estimation; price elasticities (search for similar items in EconPapers)
JEL-codes: D4 D83 L11 L66 (search for similar items in EconPapers)
Date: 2015-10, Revised 2017-09
New Economics Papers: this item is included in nep-agr, nep-com and nep-mkt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Price Dispersion and Informational Frictions: Evidence From Supermarket Purchases (2018)
Working Paper: Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:29838

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