We investigate the effect of price advertising on retailers' prices and consumer purchase behavior. Using a unique dataset of daily, station-level prices, we show that the installation of fuel price signs along the Italian motorway induces gas stations to reduce prices. Price signs affect also other stations in the motorway whose prices are not advertised. We further investigate the effect of price signs using transaction data from a number of gas stations in the motorway. We find that, as theory would predict, when prices are advertised consumers are more sensitive to price differences between gas stations, thus rationalizing the price decrease observed. The price differences across stations advertised by the signs also affect the quantity of fuel purchased at each visit. Interestingly, after the price signs are installed we also observe a significant increase in quantity purchased, suggesting that price advertising affects the substitution with the outside good.
Price Advertising and Retail Competition: Evidence from Fuel Price Signs in the Italian Motorway
ROSSI, FEDERICO;
2013
Abstract
We investigate the effect of price advertising on retailers' prices and consumer purchase behavior. Using a unique dataset of daily, station-level prices, we show that the installation of fuel price signs along the Italian motorway induces gas stations to reduce prices. Price signs affect also other stations in the motorway whose prices are not advertised. We further investigate the effect of price signs using transaction data from a number of gas stations in the motorway. We find that, as theory would predict, when prices are advertised consumers are more sensitive to price differences between gas stations, thus rationalizing the price decrease observed. The price differences across stations advertised by the signs also affect the quantity of fuel purchased at each visit. Interestingly, after the price signs are installed we also observe a significant increase in quantity purchased, suggesting that price advertising affects the substitution with the outside good.I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.