Asymmetric Price Effects of Competition

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Asymmetric Price Effects of Competition

Author Info

Saul Lach () (The Hebrew University and CEPR)
José Luis Moraga-González () (University of Groningen)

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Abstract

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 find 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 effect on prices. These findings, which are consistent with a theoretical model where consumers differ in the information they have about prices, imply that consumers' gains from competition depend on their shopping behavior. In our data, all consumers, irrespective of the number of prices they observe, benefit 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 effect on the welfare of consumers in the Netherlands.

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Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 09-049/2.

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Date of creation: 03 Jun 2009
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Handle: RePEc:dgr:uvatin:20090049

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Other versions of this item:

Paper
- Lach, Saul & Moraga, Jose L., 2009. "Asymmetric price effects of competition," IESE Research Papers D/797, IESE Business School. [Downloadable!]
- Lach, Saul & Moraga-González, José-Luis, 2009. "Asymmetric Price Effects of Competition," CEPR Discussion Papers 7319, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)

Find related papers by JEL classification:
J1 - Labor and Demographic Economics - - Demographic Economics

This paper has been announced in the following NEP Reports:

NEP-ALL-2009-07-03 (All new papers)
NEP-COM-2009-07-03 (Industrial Competition)
NEP-IND-2009-07-03 (Industrial Organization)

References listed on IDEAS
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Other versions:
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This page was last updated on 2009-11-19.

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