Tuesday, January 26, 2016

Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases

Dubois, Pierre and Perrone, Helena address Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases.

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.

https://lawprofessors.typepad.com/antitrustprof_blog/2016/01/price-dispersion-and-informational-frictions-evidence-from-supermarket-purchases-1.html

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