Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, April 2, 2019

Price Dispersion and Informational Frictions: Evidence from Supermarket Purchases

By: Pierre DuboisHelena Perrone
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.
Keywords: imperfect information, price dispersion, sales, search costs, product differentiation, consumer behavior, demand estimation, price elasticities
JEL: D4 D83 L11 L66
Date: 2018–10

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Nice article! I shared it!
Thanks for the info!

Posted by: Tina Roberts | Apr 18, 2019 1:40:44 AM

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