Price disclosure rules and consumer price comparison

Stühmeier Torben

Abstract

Search frictions are regarded as a major impediment to active competition in many markets. In some markets, such as financial and retail gasoline, governments and consumer protection agencies call for compulsory price reporting. Consumers could then more easily compare the firms' offers. We show that for a given level of price comparison, mandatory price reporting indeed generally benefits consumers. Such regulation, however, feeds back into firms' strategies, resulting in lower levels of price comparison in equilibrium. This effect may dominate so that the regulation leads to higher expected market prices.