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Asymmetric Price Effects of Competition
Author(s) -
Lach Saul,
MoragaGonzález José L.
Publication year - 2017
Publication title -
the journal of industrial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.93
H-Index - 77
eISSN - 1467-6451
pISSN - 0022-1821
DOI - 10.1111/joie.12158
Subject(s) - price dispersion , competitor analysis , competition (biology) , economics , mid price , distribution (mathematics) , order (exchange) , econometrics , microeconomics , law of one price , price level , monetary economics , mathematics , ecology , mathematical analysis , management , finance , biology
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.