Asymmetric Price Effects of Competition

Saul Lach*, José L. Moraga-González

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

17 Scopus citations

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.

Original languageAmerican English
Pages (from-to)767-803
Number of pages37
JournalJournal of Industrial Economics
Volume65
Issue number4
DOIs
StatePublished - Dec 2017

Bibliographical note

Publisher Copyright:
© 2017 The Editorial Board of The Journal of Industrial Economics and John Wiley & Sons Ltd

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