The Economics of Information and Retail Gasoline Price Behavior: An Empirical Analysis

Abstract

This paper provides empirical results which indicate that consumer responses to imperfect, costly information have an important impact on price behavior in the retail gasoline market. Two aspects of price behavior are investigated: the market price dispersion at a point in time and the variability of price over time. Through use of a multiple-regression cross-city analysis of price behavior, both of these characteristics are shown to depend on a set of proxy variables representing the benefits and costs to consumers of acquiring information. In addition, prices vary more within a given city at stations catering to relatively well informed customers.