Asymmetric Price Effects of Competition

Jose Luis Moraga-Gonzalez, Saul Lach
2009 Social Science Research Network  
This paper examines how the distribution of prices changes with the number of competitors in the market. Using gasoline price data from the Netherlands we ...nd that as competition increases, the distribution of prices spreads out: the low prices go down while the high prices go up, on average. As a result, competition has an asymmetric e¤ect on prices. These ...ndings, which are consistent with a theoretical model where consumers di¤er in the information they have about prices, imply that
more » ... es, imply that consumers'gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, bene...t from an increase in the number of gas stations. The magnitude of the welfare gain, however, is greater for those consumers that are aware of more prices. We conclude that an increase in the number of gas stations has a positive but unequal e¤ect on the welfare of consumers in the Netherlands.
doi:10.2139/ssrn.1440153 fatcat:qubk752lcfdnvjsqxaeoovftki