Asymmetric Price Effects of Competition1. (18th December 2017)

• Record Type: Journal Article
• Authors: Lach, Saul; Moraga‐González, José L.
• Is Part Of: Journal of industrial economics. Volume 65:Number 4(2017:Dec.)
• Page Start: 767
• Page End: 803
• Publication Date: 2017-12-18
• Subjects: Industrial organization (Economic theory) -- Periodicals; 338
• DOI: 10.1111/joie.12158
• Languages: English
• ISSNs: 0022-1821

Abstract

Abstract: When price dispersion is prevalent, a relevant question is what happens to the whole distribution of equilibrium prices when the number of firms changes. Using data from the gasoline market in the Netherlands, we find, first, that markets with N competitors have price distributions that first‐order stochastically dominate the price distributions in markets with N+1 firms. Second, the effect of competition is stronger for the medium to upper percentiles of the price distribution. Finally, consumer gains from competition are larger for relatively well‐informed consumers. To account for these empirical patterns, we extend Varian's [1980] model by allowing for richer heterogeneity in consumer price information.