Consumer Search and Dynamic Price Dispersion: An Application to Gasoline Markets

Ambarish Chandra, Mariano E. Tappata
2011 Social Science Research Network  
This paper studies the role of imperfect information in explaining market price dispersion. We claim the need for an alternative to the common tests used to identify consumer search, by pointing out the ambiguous predictions from search theory. Using a new panel dataset on the U.S. retail gasoline industry, we establish the importance of consumer search with a simple and novel test of temporal price dispersion involving price-spreads between pairs of gasoline stations in a given market. We
more » ... ven market. We exploit the crosssectional variation in our dataset to establish the equilibrium relationships between price dispersion and key variables from consumer search models. We ...nd that price dispersion increases with search costs, increases with the number of ...rms in the market and decreases with the production cost.
doi:10.2139/ssrn.1116054 fatcat:riryyjqmm5eg3ialjsrerqco3q