Price Transparency, Media, and Informative Advertising

We study the effects of a price transparency regulation in Israeli supermarkets. Using price data collected before and after the regu-lation and a difference-in-difference research design, we show that price levels and price dispersion declined significantly after the reg-ulation. Chains also began setting identical prices in all stores. We use Robert and Stahl (1993) to interpret our findings, showing that low-priced chains extensively used price advertising after prices became transparent. These chains referenced price-comparison surveys conducted by the media to induce credibility for ads. Our findings highlight the importance of price transparency and the procompetitive role of informative advertising.