Market Transparency and Consumer Search

The paper presented in this Mannheim Virtual IO Seminar studies a novel trade-off in market transparency regulation by estimating a structural model of the German retail gasoline market. Transparent environments enable easy price comparisons and match findings. Restricting transparency such that only the cheapest offers are shown induces firms to compete for attention, but matching is inefficient. The authors find that there is an inverse u-shaped relationship between consumer welfare and market transparency. Consumer welfare is maximal when only the first 20% of prices are shown, which decreases consumer expenditures by 1.2%. Their framework allows estimating discrete choice models with incomplete information using price data only.