Thursday, July 18, 2019
Luis M. B. Cabral, New York University (NYU) - Leonard N. Stern School of Business - Department of Economics; Centre for Economic Policy Research (CEPR), Dominik Schober, ZEW – Leibniz Centre for European Economic Research, and Oliver Woll, ZEW – Leibniz Centre for European Economic Research - Competition and Regulation Research Group identify Search and Equilibrium Prices: Theory and Evidence from Retail Diesel.
ABSTRACT: We examine the relation between consumer search and equilibrium prices when collusion is endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a €.025/liter price variation due to the variation in the measure of searchers.