Consumer and competitor reactions: Evidence from a retail-gasoline field experiment
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Date
2003-09
Authors
Barron, John M.
Umbeck, John R., 1945-
Waddell, Glen R.
Journal Title
Journal ISSN
Volume Title
Publisher
University of Oregon, Dept of Economics
Abstract
The standard differentiated-product model with Nash-equilibrium price setting suggests that the density of sellers in a market can affect both a seller’s price elasticity of demand and a competitor’s reaction to a price change. Using field experiment data collected around a series of exogenously imposed price changes, we are able to demonstrate that a gasoline retailer’s price elasticity of demand is directly related to seller density, where density is measured by the number of sellers within a given geographical area. This finding appears to be one potential source for observed persistent price differences. The data also allow us to examine the reaction of rivals to exogenous price changes. Consistent with the theory, we find that competitors’ price reactions are in the same direction, with the magnitude of the competitors’ reactions being inversely related to the market’s density of sellers.
Description
39, 5 p. : ill.
Keywords
Microeconomics, Industrial organization, Information and uncertainty, Market structure and pricing, Market structure, firm strategy, and market performance, Search, learning, and information