Template-Type: ReDIF-Paper 1.0
Title: Price Dispersion and Informational Frictions: Evidence From Supermarket Purchases
Author-Name: Pierre Dubois
Author-Email: pierre.dubois@tse-fr.eu
Author-Name: Helena Perrone
Author-Email: helena.perrone@upf.edu
Classification-JEL: D4, D83, L11, L66
Keywords: imperfect information, price dispersion, sales, search costs, product differentiation, consumer behavior, demand estimation, price elasticities

Abstract: Traditional demand models assume that consumers are perfectly informed about product
characteristics, including price. However, this assumption may be too strong. Unannounced
sales are a common supermarket practice. As we show, retailers frequently change position
in the price rankings, thus making it unlikely that consumers are aware of all deals o¤ered in
each period. Further empirical evidence on consumer behavior is also consistent with a model
with price information frictions. We develop such a model for horizontally di¤erentiated
products and structurally estimate the search cost distribution. The results show that in
equilibrium, consumers observe a very limited number of prices before making a purchase
decision, which implies that imperfect information is indeed important and that local market
power is potentially high. We also show that a full information demand model yields severely
biased price elasticities.

Note: 
Length: 35
Creation-Date: 2018-10
Revision-Date: 
File-URL: https://www.crctr224.de/research/discussion-papers/archive/dp047
File-Format: application/pdf
Handle: RePEc:bon:boncrc:CRCTR224_2018_047