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  model by allowing for richer heterogeneity in consumer price information.
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∗We thank the Editor, and two anonymous referees, from whom we received numerous comments that helped us improve the paper. We are also indebted to Marco Haan, Pim Heijnen and Adriaan Soetevent for providing us with the dataset for this study and for answering our many questions about it. We also thank Guillermo Caruana, Riemer Faber, Chaim Fersthman, David Genesove, Alex Gerhskov, Dietmar Harhoff, Corine Hoeben, Maarten Janssen, Gerard Llobet, Jan de Loecker, Benny Moldovanu, Marielle Non, Carlos Noton, Vaiva Petrikaite, Giuseppe Ragusa, Zsolt Sandor, Dirk Stelder, Matthijs Wildenbeest, Mariano Tappata and Shlomo Yitzhaki for their comments. The paper has also benefited from seminar participants at the ASSET Meetings 2010, Ben Gurion University, CEMFI, 10th CEPR Conference on Applied Industrial Organization, CERGE-EI, Instituto Di Tella, 24th Annual Congress of the EEA, 37th Annual Congress of the EARIE, The Hebrew University, London School of Economics, Tel-Aviv University, University of Mannheim, University of Zurich, 3rd Workshop on Search and Switching Costs and The World Bank. Boaz Abram-son, Yaron Aronshtan, Danny Bahar, Eli Berglas and Sarit Weisburd provided excellent research assistance. Lach gratefully acknowledges financial support from the Wolfson Family Charitable Trust. Moraga gratefully acknowledges financial support from the Marie Curie Excellence Grant ME† XT-CT-2006-042471.
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