Working Paper: CEPR ID: DP12813
Authors: Luis M. B. Cabral; Dominik Schober; Oliver Woll
Abstract: We examine the relation between consumer search and equilibrium prices when collusion in endogenously determined. We develop a theoretical model and show that average price is a U-shaped function of the measure of searchers: prices are highest when there are no searchers (local monopoly power) or when there are many searchers (and sellers opt to collude). We test this prediction with diesel retail prices in Dortmund, Germany. We estimate a U-shaped relation with statistical precision and a Euro .025/liter price variation due to the variation in the measure of searchers.
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Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| high searchers (R23) | likelihood of collusion (L12) |
| likelihood of collusion (L12) | average price (P22) |
| very few searchers (D83) | average price (P22) |
| very high searchers (D83) | average price (P22) |
| measure of searchers (C80) | equilibrium profits (no-collusion) (D43) |
| equilibrium profits (no-collusion) (D43) | benefits of collusion (L12) |
| measure of searchers (C80) | average price (P22) |