Missing Price Information and Its Impact on Equilibrium Price Dispersion: Evidence From Gasoline Signboards*

Abstract

This article seeks to quantify the importance of price information in reducing consumer search costs and equilibrium price dispersion in a competitive setting. It exploits a natural experiment in the retail gasoline industry in which stations post the prices of only certain grades of gasoline on large street‐side signboards, and not others, except where required by law. Differential‐by‐grade signboard information predicts a specific curvature in price dispersion across grades, and differentiates itself from other noninformational factors such as income and cost. The impact of readily‐available price information on search and price dispersion is found to be exceptionally large.