Thursday, January 11, 2018
Itai Ater, Tel Aviv University - Coller School of Management and Oren Rigbi, Ben-Gurion University of the Negev discuss The Effects of Mandatory Disclosure of Supermarket Prices.
ABSTRACT: We study how mandatory online disclosure of supermarket prices affects prices and price dispersion in brick-and-mortar stores. Using data collected before and after a transparency regulation went into effect in the Israeli food retail market, multiple complementary control groups and relying on a differences-in-differences research design, we document a sharp decline in price dispersion and a 4% to 5% drop in prices following the transparency regulation. The price drop varied across stores and products; it was smaller among branded products than among private-label products, and it was smaller among stores and products that were likely to have been associated with more intense search patterns even before prices became transparent (e.g., products in heavy-discount chains; popular products; products that meet stringent kosher requirements). Finally, we show that prices declined as more consumers used price-comparison websites, and we highlight the role of media coverage in encouraging retailers to set lower prices.