Gasoline Price Dispersion and Consumer Search: Evidence from a Natural Experiment

The vast majority of empirical studies examining the link between consumer search and price dispersion focus on how changes in consumer search impact price dispersion. This article does the reverseit examines how a shock to price dispersion impacts consumer search. A direct measure of search is used and an exogenous shock to price dispersion is found in a refinery fire that caused decades-old retail gasoline price cycles, and the nonlinear high-frequency price dispersion pattern generated by them, to stop. Identifying effects from this shock, the results show a substantial response of consumer search to changes in price dispersion.