Loy, Jens‐Pe e ; Penne s o e , Die e ; R oshi, Daniela; Weiss, Ch is oph; Yon che a,
Biliana
A icle — Published Ve sion
Consume In o ma ion and P ice T ansmission: Empi ical
E idence
The Jou nal o Indus ial Economics
P o ided in Coope a ion wi h:
John Wiley & Sons
Sugges ed Ci a ion: Loy, Jens‐Pe e ; Penne s o e , Die e ; R oshi, Daniela; Weiss, Ch is oph;
Yon che a, Biliana (2022) : Consume In o ma ion and P ice T ansmission: Empi ical E idence, The
Jou nal o Indus ial Economics, ISSN 1467-6451, Wiley, Hoboken, NJ, Vol. 70, Iss. 3, pp. 631-683,
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THE JOURNAL OF INDUSTRIAL ECONOMICS 0022-1821
Volume LXX Sep embe 2022 No. 3
CONSUMER INFORMATION AND PRICE TRANSMISSION:
EMPIRICAL EVIDENCE*
JENS-PETER LOY†
DIETER PENNERSTORFER‡
DANIELA RROSHI§
CHRISTOPH WEISS¶
BILIANA YONTCHEVAΩ
We in es iga e how consume in o ma ion a ec s p ice adjus men in
he Aus ian e ail gasoline ma ke . Ou measu e o consume in o -
ma ion is ob ained om de ailed census da a on commu ing beha -
io , as commu e s can eely sample p ices on hei commu ing ou e
and a e hus be e in o med abou p ices. A h eshold e o -co ec ion
model sugges s ha p ices adjus mo e quickly i cos shocks exceed
ce ain h esholds. Pa ame ic and semi-pa ame ic eg essions show
ha a la ge sha e o in o med consume s inc eases bo h ansmission
speed and pass- h ough a e, bu has no e ec on he asymme y o cos
ansmission.
I. INTRODUCTION
We mus look a he p ice sys em as such a mechanism o
communica ing in o ma ion i we wan o unde s and i s eal
unc ion – a unc ion which, o cou se, i ul ils less pe ec ly as
p ices g ow mo e igid. (Hayek [1945], p. 526).
*We hank semina and con e ence pa icipan s a he Vienna Uni e si y o Economics and
Business, he Johannes Keple Uni e si y Linz, he Uni e si y o Ba i Aldo Mo o, he ISWG
Wo kshop ‘Empi ical Economics’ Innsb uck, he PSE Summe School IO Wo kshop, he 10 h
Geo ey J.D. Hewings Regional Economics Wo kshop Vienna, he Annual Mee ing & he 100 h
Anni e sa y o he Aus ian Economic Associa ion (NOeG), he Economic Resea ch Semina
B a isla a, and The Economy as a Spa ial Complex Sys em (ESCoS 2018) o help ul commen s.
†Au ho s’ a ilia ions: Kiel Uni e si y, Olshausens aße 40, Kiel, Ge many.
e-mail: [email protected]
‡Johannes Keple Uni e si y Linz, Al enbe ge S aße 69, Linz, Aus ia.
e-mail: die e .penne s o [email p o ec ed]
§Vienna Uni e si y o Economics and Business, Wel handelspla z 1, Vienna, Aus ia.
e-mail: daniela. [email p o ec ed].a
¶Vienna Uni e si y o Economics and Business, Wel handelspla z 1, Vienna, Aus ia.
e-mail: cw[email p o ec ed].a
ΩDüsseldo Ins i u e o Compe i ion Economics (DICE), Hein ich-Heine Uni e si y o
Düsseldo , Uni e si ä ss aße 1, Düsseldo , Ge many, and CEPR, London, UK.
e-mail: yon che [email protected]
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial
Economics and John Wiley & Sons L d.
This is an open access a icle unde he e ms o he C ea i e Commons A ibu ion License, which pe mi s use, dis ibu ion
and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed.
631
632 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
FOLLOWING HAYEK’S EARLY OBSERVATION, economis s ega d he adjus men
o p ices as an impo an mechanism by which in o ma ion abou changes in
demand and cos s is communica ed o ma ke pa icipan s. Acco dingly, mea-
su es o he ex en and speed by which exogenous shocks a e ansmi ed in o
p ices a e equen ly used as a ya ds ick o assessing he unc ioning o ma -
ke s. The empi ical li e a u e on p ice ansmission (and cos pass- h ough) is
eno mous and co e s many di e en ma ke s and ime pe iods.1This li e a-
u e clea ly sugges s ha p ices adjus (a) slowly and (b) o en asymme ically
o exogenous shocks.
Di e en a gumen s ha e been p oposed o accoun o a slow, incom-
ple e and/o asymme ic p ice ansmission: ma ke powe (Bo ens ein
e al. [1997]; Weyl and Fabinge [2013]), menu cos s (Ball and Mankiw [1994]),
lags in adjus men o p oduc ion and in en o y managemen (Bo ens ein
e al. [1997]), habi o ma ion and consump ion ine ia (Xia and Li [2010])
and p oduc di e en ia ion (Loy and Weiss [2019]).
Recen ly, explana ions ela ed o consume sea ch beha io ha e ecei ed a
lo o o mal a en ion (see Yang and Ye [2008]; Tappa a [2009]; Lewis [2011];
Cab al and Fishman [2012]). While he echnical de ails di e , a common ea-
u e o all models is ha consume s’ sea ch beha io and i ms’ p ice se ing
a e de e mined simul aneously. Fi ms’ incen i es o adjus p ices (upwa ds
o downwa ds) o exogenous shocks a e de e mined by how well consume s
a e in o med abou p ices. A he same ime, he mo i a ion o consume s o
become in o med and lea n abou indi idual p ices depends on i ms’ p ice
se ing beha io (mo e de ails will be p o ided in he ollowing sec ion). In
hese models cos inc eases a e ansmi ed mo e quickly compa ed o cos
dec eases, because consume s sea ch mo e (and a e hus be e in o med) in
he i s case. These models he e o e p o ide a sea ch- heo e ic a ionale o
he ‘ ocke s and ea he s phenomenon.’2
Despi e he ecen wa e o heo e ical wo k on he impac o in o ma ion
and consume sea ch on p ice se ing, empi ical e idence is sca ce. The
easons o his a e wo- old: Fi s ly, consume s’ in o ma ion endowmen s o
consume s’ sea ch cos s usually canno be obse ed di ec ly and a e he e o e
di icul o quan i y. Secondly, as indica ed abo e, consume s’ sea ch beha io
is likely o be in luenced by i ms’ p icing decisions and is hus endogenous:
equen and subs an ial p ice changes educe consume s’ incen i es o sea ch
because he dep ecia ion a e o (p ice) in o ma ion is high (Ma el [1976]).
1Kouya é and on C amon-Taubadel [2016] unco e 492 ecen pape s using p ice ansmis-
sion as a sea ch e m. Excellen e iews o he oluminous empi ical li e a u e on p ice ansmis-
sion and cos pass- h ough a e p o ided in Meye and on C amon-Taubadel [2004], F ey and
Mane a [2007], Wolman [2007], Bakucs e al. [2014], Hassouneh e al. [2015] and Lloyd [2017].
The exis ing li e a u e o en uses he e ms ‘p ice ansmission’ and ‘cos pass- h ough’ in e -
changeably o cha ac e ize he impac o cos changes on e ail p oduc p ices.
2Bacon [1991] in oduces he e m ‘ ocke s and ea he s phenomenon’ o si ua ions in which
p ices espond mo e quickly o cos inc eases han o dec eases.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 633
Likewise, consume s’ gains om sea ch a e small i i ms cha ge simila
p ices and p ice dispe sion in a ma ke is low (Tappa a [2009]). This endo-
genei y o consume sea ch makes i di icul o iden i y he causal e ec
o in o ma ion on p ice se ing in gene al, and on p ice ansmission in
pa icula .
We con ibu e o his sca ce empi ical li e a u e in wo dimensions: Fi s ,
we apply a no el measu e o consume in o ma ion based on p ecise commu -
ing pa e ns ha is a guably independen o i ms’ p ice se ing beha io and
hus allows iden i ica ion o causal e ec s. We in es iga e p ice ansmission
in he e ail gasoline ma ke in Aus ia o a ime pe iod when websi es
epo ing comp ehensi e and up- o-da e in o ma ion on gasoline p ices
we e no ye a ailable. Ac ually going o a speci ic gasoline s a ion was in
ac he only way o consume s o lea n abou cu en gasoline p ices a
ha s a ion.3As poin ed ou by Ma el [1976], in o ma ion abou gasoline
p ices di e s signi ican ly be ween wo consume g oups: commu e s and
non-commu e s. Commu e s can eely sample all p ice quo es o gasoline
along hei commu ing ou e and a e he e o e ypically be e in o med
han non-commu e s. We ob ain a measu e o consume in o ma ion by
using de ailed da a on commu ing beha io om he Aus ian census o
calcula e he sha e o commu e s passing by each indi idual gas s a ion
(Penne s o e e al. [2020]). No e ha his measu e o consume in o -
ma ion is de e mined by consume s’ long- un decisions o commu e (i.e.,
whe e o li e and wo k), which is o hogonal o s a ions’ sho - un p icing
decisions.
Second, we use a lexible empi ical app oach o measu ing he deg ee
o p ice ansmission by es ima ing h eshold e o -co ec ion models
(TECM). This me hod de e mines he op imal h eshold alues endoge-
nously o each s a ion o classi y a s a ion’s p ice spell in o di e en
egimes, and es ima es sepa a e p ice adjus men pa ame e s o each egime.
This app oach akes in o accoun i ms’ ansmi ing cos changes a di -
e en speeds, depending on he size and he sign o he cos shock. We
can he e o e dis inguish be ween an asymme y in he speed o adjus -
men and an asymme y in h esholds (and hus he size o he di e en
egimes). This u ns ou o be impo an o in e p e ing ou empi i-
cal esul s in ligh o heo e ical models (see, o ins ance, Cab al and
Fishman [2012]).
3The a ailabili y o p ice compa ison websi es as well as sma phone applica ions and au o-
mobile global posi ioning sys ems, which p o ide he cu en p ice o gasoline a nea by e ail
loca ions, had a subs an ial e ec on consume sea ch cos s in he gasoline ma ke . A he same
ime, i also makes i easie o i ms o moni o each o he ’s p ices and could hus acili a e col-
lusion be ween i ms. In such a se ing, iden i ica ion o he e ec s o consume in o ma ion on
p ice dynamics is impeded. In e es ing empi ical s udies on p ice sea ch beha io on he basis o
hese echnologies include Lewis and Ma el [2011], De los San os e al. [2012] and By ne and de
Roos [2017].
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
634 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
Consis en wi h heo e ical p edic ions, we ind empi ical e idence ha
gasoline s a ions’ p ice ansmission is in luenced by consume s’ in o ma ion
endowmen s. A la ge sha e o in o med commu e s leads o a highe speed
o p ice ansmission and a highe pass- h ough a e. We do no obse e
a signi ican e ec o consume in o ma ion on he asymme y o p ice
adjus men , nei he in he speed o adjus men no in adjus men h esholds.
The emainde o his a icle is o ganized as ollows: Sec ion II b ie ly
e iews heo e ical models o consume sea ch and p ice dynamics and
discusses measu es o consume in o ma ion used in he exis ing empi ical
li e a u e. Sec ion III p esen s he da a and Sec ion IV epo s es ima ion
esul s. Sec ion Vdesc ibes esul s om al e na i e es ima ion expe imen s
and Sec ion VI concludes.
II. LITERATURE
II(i). Theo y
A numbe o heo e ical models a ibu e (asymme ic) p ice ansmission o
consume sea ch beha io . The cen al ea u e o hese models is ha p ice
igidi y o , con e sely, he speed o p ice adjus men is ela ed o consume s’
in o ma ion endowmen and sea ch in ensi y: I mo e consume s become
in o med, he in ensi y o compe i ion inc eases, p ice-cos ma gins decline,
and cos changes a e passed on o consume s mo e quickly.
Al hough he exac mechanisms di e , asymme ic p ice adjus men in
hese models is gene a ed by consume s sea ching mo e when cos s o p ices
inc ease han when cos s o p ices dec ease: In Yang and Ye [2008] consume s
do no obse e p oduc ion cos s di ec ly, bu lea n abou cos s by obse ing
i ms’ p ices. Consume s lea n abou posi i e cos shocks mo e quickly and
cos inc eases a e hus passed on as e han cos dec eases. In Tappa a [2009],
consume s sea ch mo e when cos s inc ease, and a ise in inpu p ices is he e-
o e passed on mo e quickly. In Lewis [2011] consume s sea ch mo e when
p ices (and hence cos s) a e inc easing, wi h simila consequences on he
asymme y o p ice dynamics. In Cab al and Fishman [2012] consume s lea n
abou cos shocks by obse ing p ice changes, which induces hem o sea ch
he ma ke . In o de o a oid consume sea ch, i ms e ain om passing on
small cos dec eases, leading o slowe pass- h ough o (small) cos dec eases
ela i e o cos inc eases.
To acili a e in e p e a ion o he exis ing empi ical e idence, we b ie ly
e isi Tappa a’s [2009] model, which is mos closely ela ed o ou empi i-
cal analysis.4In his model, a ini e numbe o n>1 i ms sell a homogeneous
p oduc . They ace cons an ma ginal cos s cand compe e in p ices. The e is
4A mo e de ailed e iew o Tappa a’s [2009] model is p esen ed in Online Appendix B, which
is a ailable a he Jou nal’s edi o ial web si e.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.

CONSUMER INFORMATION AND PRICE TRANSMISSION 635
a uni mass o consume s wi h uni demand o he p oduc and willingness
o pay >c.
Tappa a [2009] dis inguishes be ween di e en g oups o consume s. A
sha e 𝜆∈[0,1]o consume s obse es all p ices a no cos ; hese ‘shop-
pe s’ ob ain p ice in o ma ion unin en ionally (in he case o gasoline, o
example, commu e s obse e p ices om gasoline s a ions on hei commu e
ou e). The emaining sha e o consume s (1 −𝜆) ha e posi i e, bu he e oge-
neous sea ch cos s and will be e e ed o as ‘non-shoppe s.’ Non-shoppe s
decide whe he o no o sea ch by compa ing hei sea ch cos s wi h he
expec ed gains om sea ch E[p−pmin], wi h pmin being he lowes p ice
in he ma ke . I non-shoppe s choose o sea ch, hey obse e all p ices
in he ma ke (all-o -no hing nonsequen ial sea ch) and hus become ully
in o med. Toge he , shoppe s as well as hose non-shoppe s, who decide
o sea ch, cons i u e he g oup o in o med consume s; hei sha e among
all consume s is 𝜇. In o med consume s buy om he cheapes s o e, p o-
ided ha i s p ice does no exceed hei willingness o pay . The 1 −𝜇
uni o med consume s ( he non-shoppe s, who choose no o sea ch) buy
om a andomly selec ed s o e, as long as he p ice a his s o e does no
exceed .
In his model, consume s’ sea ch in ensi ies (consume s’ in o ma ion
endowmen s) a ec he deg ee o compe i ion among i ms: a highe sha e
o in o med consume s implies a mo e elas ic i m demand, which ansla es
in o highe cos pass- h ough a es. Tappa a [2009] shows o mally ha he
cos pass- h ough a e inc eases wi h he sha e o in o med consume s, i.e.,
𝜕2p
𝜕c𝜕𝜇 >0, whe e pdeno es he a e age ma ke p ice. Since 𝜕𝜇
𝜕𝜆 >0, his esul
also holds o he sha e o shoppe s (𝜕2p
𝜕c𝜕𝜆 >0).
In o de o explain asymme ies in p ice adjus men , Tappa a [2009]
in oduces a simple dynamic model in which consume s do no know he
ac ual p oduc ion cos . Thei sea ch decisions a e based upon pas cos
ealiza ions and he elas ici y o demand di e s be ween pe iods o ma ginal
cos inc eases o dec eases. Mo e speci ically, Tappa a [2009] assumes ha
ma ginal p oduc ion cos s can be high (cH)o low(cL), and a cos dec ease
(inc ease) is hus equi alen o cos s changing om cH o cL( om cL o cH).5
Consume s do no obse e he con empo aneous cos ealiza ion, bu o m
expec a ions abou p oduc ion cos s based on cos ealiza ions in he p e ious
pe iod. I ma ginal cos s we e high (cH) in he p e ious pe iod, consume s
s ill expec high cos s oday. In his case, p ice dispe sion is expec ed o
be low, which educes he incen i es o sea ch. Consequen ly he sha e o
5The assump ion o only wo ma ginal cos s a es (high and low) is c i icized in Lewis [2011],
since his makes i di icul o iden i y whe he po en ial e ec s o igina e o m high s. low ma gin
pe iods o om posi i e s. nega i e cos changes. Lewis [2011] de elops a heo e ical model
(and also p esen s empi ical e idence) showing ha p ices espond as e o cos changes du ing
pe iods when ma gins a e low.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
636 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
in o med consume s will be low, which educes he elas ici y o demand
aced by each i m. The ma ke ge s less compe i i e and he link be ween
cos s and p ices becomes weake . I , on he o he hand, cos s inc ease om
cL o cH, consume s (misleadingly) expec o be in a low-cos en i onmen ,
expec p ice dispe sion o be high and hus sea ch mo e in ensi ely. The
inc easing mass o in o med consume s inc eases he demand elas ici y and
makes he ma ke mo e compe i i e. Tappa a [2009] hus concludes ha
posi i e cos shocks a e passed on o p ices mo e quickly han nega i e
ones.
A di ec empi ical es o Tappa a’s [2009] model p edic ion ega ding
asymme ies in p ice adjus men is di icul , because e en i esea che s
obse e consume s’ ac ual sea ch beha io in ime pe iods o bo h cos
inc eases and dec eases, he sha e o in o med consume s will ne e heless
be endogenous.6To a oid endogenei y conce ns we use a measu e o he
(exogenous) sha e o shoppe s 𝜆in he empi ical applica ion. No e, howe e ,
ha Tappa a’s [2009] analysis does no p o ide clea p edic ions ega ding
he e ec o his consume g oup on he asymme y o p ice ansmission:
he ela ionship be ween he di e ence in he equilib ium sha e o in o med
consume s be ween a low-cos and a high-cos en i onmen , esponsible
o he asymme y in p ice ansmission, and he sha e o shoppe s 𝜆can
be ei he nega i e o e he en i e ange o 𝜆∈[0,1]o cha ac e ized by an
in e se-U-shaped ela ionship.7
Ano he implica ion o Tappa a’s [2009] model is ha he speed o cos
ansmission depends on he sign, bu no on he size o he cos shock.
In a di e en heo e ical se ing, Cab al and Fishman [2012] de elop a
sea ch- heo e ic model whe e p ices a e s icky o cos changes wi hin speci ic
anges. In his model p ice changes a e likely o induce consume sea ch,
which i ms wan o a oid, because be e in o med consume s make he
ma ke mo e compe i i e. I cos shocks a e posi i ely co ela ed ac oss
i ms (which is likely in he e ail gasoline ma ke ), he gains om adjus ing
p ices o mode a e cos dec eases a e small ela i e o he expec ed loss
due o inducing consume sea ch. P ices emain cons an i cos s dec ease
mode a ely, while la ge nega i e as well as posi i e cos shocks a e passed on
o consume s quickly, esul ing in h ee egimes wi h a highe speed o p ice
ansmission in he ou e egimes.
On he basis o his sho e iew o heo e ical models, we iden i y wo
issues ha a e pa icula ly impo an o he in e p e a ion o he empi ical
e idence. Fi s , he ex en o which consume s sea ch in o de o ob ain
6Empi ical a icles obse ing consume sea ch beha io di ec ly a he indi idual le el (De los
San os e al. [2012]) o a he ma ke le el (Lewis and Ma el [2011]; By ne and de Roos [2017])
a e indeed in e es ed in explaining consume sea ch a he han e alua ing he e ec o consume
in o ma ion on p ices.
7See Online Appendix B o a mo e de ailed discussion o his poin .
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 637
in o ma ion abou p ices is endogenous. This endogenei y o sea ch calls o
an adequa e s a egy o iden i y he causal e ec s o consume in o ma ion
on p ice ansmission. We accoun o his by p o iding a measu e o he
sha e o shoppe s 𝜆, a a iable exogenous in he heo e ical models. Second,
an adequa e measu emen o he deg ee and asymme y o p ice ansmission
needs o di e en ia e be ween di e en dimensions o p ice adjus men .
In Tappa a [2009] he asymme y in p ice adjus men s ems om di e ences
in he speed o ansmission o cos inc eases compa ed o cos dec eases. In
Cab al and Fishman [2012], on he o he hand, he asymme y comes om
he h esholds con ining he ‘inne egime’ (cha ac e ized by s icky p ices)
being asymme ic (i.e., no cen e ed a ound ze o). In ou empi ical analysis
we hus es ima e e y lexible h eshold e o -co ec ion models (TECM)
ha allow us o di e en ia e be ween asymme ies in he speed o p ice
ansmission and in h eshold le els.
II(ii). In o ma ion and P ices: E idence
An ob ious challenge in he empi ical li e a u e on he ela ionship be ween
in o ma ion and p ices is he measu emen o indi idual consume s’ in o -
ma ion endowmen s o buye s’ sea ch ac i i ies. In his seminal wo k on ‘The
Economics o In o ma ion,’ S igle [1961] a gues ha consume s will sea ch
mo e i he bene i s om sea ch inc ease and/o i sea ch cos s dec ease. In
he absence o a di ec measu e o consume s’ in o ma ion endowmen , he
p oxy a iables ypically used can be classi ied along hese lines, i.e., indica o s
ela ed o he bene i s om as well as he cos s o sea ch.
In one o he i s empi ical s udies on he impac o consume in o ma ion
and p ices in he gasoline ma ke , Ma el [1976] uses gasoline consump ion
pe ca o p oxy bene i s om sea ch. Gains will be la ge i pe capi a
consump ion is high. Median amily income and schooling a e used o mea-
su e cos s o sea ch. Ma el [1976] a gues ha an inc ease in amily income
aises oppo uni y cos s o ime (cos s o sea ch)8and ha be e educa ion
inc eases he e iciency o sea ch. So ensen [2000], in es iga ing he ma ke
o p esc ip ion d ugs, a gues ha pu chase equency is an impo an ele-
men o he sea ch decision. I p esc ip ions a e pu chased epea edly, p ice
in o ma ion ob ained om sea ching he ma ke s can be used mul iple imes
be o e his in o ma ion ‘expi es.’ These ma ke s should hus be cha ac e ized
by be e in o med consume s compa ed o ma ke s o p oduc s pu chased
less equen ly.
8Measu es o amily income a e also used as p oxies o sea ch cos s in Ba on e al. [2000], o
example. Simila ly, Chand a and Tappa a [2011], Reme [2015] and Chesnes [2016] asc ibe con-
sume s o al e na i e p oduc s o di e en ypes o s o es o di e en income le els, a guing ha
indi iduals consuming p emium gasoline (Chand a and Tappa a [2011]; Reme [2015]) o going
o b anded gas s a ions (Chesnes [2016]) ea n mo e, ha e highe sea ch cos s and he e o e sea ch
less. By es ima ing a s uc u al model, Nishida and Reme [2018] p o ide empi ical e idence ha
sea ch cos s and household income a e indeed closely ela ed.
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nomics and John Wiley & Sons L d.
638 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
A no el app oach o measu ing he e ec s o sea ch cos s is adop ed by
She man and Weiss [2017]. On he basis o hand-collec ed da a om an
ou doo ma ke in Je usalem, he au ho s use c oss-sec ional and empo al
a ia ion in pedes ian conges ion as one p oxy o sea ch cos s. Indi ec
e idence on he e ec s o cos s and bene i s om sea ch o e a long ime
pe iod a e p o ided in Ecka d [2004]. Ecka d [2004] compa es p ice dis-
pe sion o he same commodi ies in 1901 and 2001 and inds ha p ice
dispe sion has inc eased o e ime, despi e he in oduc ion o signi ican
sea ch cos - educing echnologies in anspo a ion and communica ion. The
au ho a gues ha he p oduc s analyzed cons i u ed subs an ially smalle
sha es in he consume s’ budge s in 2001 compa ed o 1901. The decline in
sea ch cos s migh hus ha e been o se by a decline in he bene i s om
sea ch (associa ed wi h he educ ion in he budge sha es o hese p oduc s)
o e ime.
A guably he mos equen ly used indica o o consume in o ma ion
endowmen is consume access and use o he In e ne . Ellison and Elli-
son [2005], o ins ance, a gue ha ‘ he In e ne has p o ided esea che s
wi h he oppo uni y o s udy how ma ke s unc ion in no el and ex eme
ci cums ances. A i id example is ha wi h he g ow h o he In e ne , we
suddenly ha e ma ke s wi h essen ially no sea ch cos s’ (p. 140). The impac
o online sea ch and In e ne pu chases on p ices has been in es iga ed o
many di e en ma ke s, including au omobiles (Mo on e al. [2001]), li e
insu ance (B own and Goolsbee [2002]), books (Tang e al. [2010]), consume
elec onics p oduc s (Baye e al. [2004]), ai line icke s (O lo [2011]; Sen-
gup a and Wiggins [2014]), elec ici y (Gugle e al. [2018]) and e ail gasoline
(Luco [2019]).
While in es iga ing online ma ke s o d awing on In e ne usage o de i e
measu es o consume in o ma ion has p o ided many in e es ing insigh s,
some p oblems a e also associa ed wi h his app oach. Fi s , as Baye and
Mo gan [2001] poin ou , consume s’ decisions o use p ice compa ison
websi es a e endogenous and depend on i ms’ p icing decisions. The gains
om sea ch will be low i p ice dispe sion is low (Tappa a [2009]; Chand a
and Tappa a [2011]) o i p ice ola ili y is high (Ma el [1976]; Bo ens ein
e al. [1997]). Lewis and Ma el [2011] and By ne and de Roos [2017] p o ide
empi ical e idence ha consume s’ sea ch ac i i ies a e indeed in luenced by
i ms’ p icing decisions: Using web a ic da a om gasoline p ice epo ing
websi es, Lewis and Ma el [2011] ind ha consume s sea ch mo e when
p ices ise han when p ices all, and By ne and de Roos [2017] epo ha
consume s’ sea ch ac i i ies a e in luenced by bo h p ice dispe sion and p ice
ola ili y. Second, he a ailabili y o he In e ne o o In e ne compa ison
si es may no only p o ide a educ ion in consume s’ sea ch cos s, bu may
also ha e an i-compe i i e e ec s. I i ms can easily moni o hei i als’
ac ions, be e in o ma ion may acili a e coo dina ion in i ms’ p ice se ing
beha io . Luco [2019] p esen s a model o show ha p ice anspa ency can
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nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 645
We will e e o his equa ion as he s anda d e o -co ec ion model
(ECM).21 The e o -co ec ion e m ECT in he abo e equa ion ep esen s
he de ia ion o he e ail p ice om i s long- un ela ionship wi h he
c ude oil p ice o each gasoline s a ion, as desc ibed in Equa ion 1. Thus,
ECTi, ≡𝜖i, =Pi, −𝜅i−𝜌iC . The coe icien 𝛾imeasu es he speed o
adjus men o p ices owa ds he long- un equilib ium ( he a e a which he
e o s a e co ec ed) o gasoline s a ion i. Gi en co-in eg a ion, he speed
pa ame e 𝛾iis expec ed o be nega i e. In o de o es o e he equilib ium,
p ices dec ease in pe iods when hey a e abo e hei long- un ela ionship
wi h cos s, and a e expec ed o inc ease in pe iods when p ices a e below his
long- un ela ionship. The coe icien s 𝛿1 ep esen he sho - un esponses
o he e ail p ices o own changes in he pas wo days (A=2), and he
coe icien s 𝛿2measu e he sho - un esponses o he e ail p ice o changes
in he c ude oil p ice wi hin he las wo days (B=2).22 The in e cep and he
e o e m a e deno ed by 𝜏iand 𝜁i, , espec i ely.
The s anda d e o -co ec ion model (ECM) in Equa ion 2allows o di -
e en p ice dynamics ac oss s a ions. The weakness o his model, howe e , is
ha he adjus men p ocess o a pa icula gas s a ion is es ic ed o be he
same, i espec i e o (a) he sign and (b) he size o he cos shock.
Bo h, heo e ical models as well as a la ge numbe o empi ical s udies (see
Sec ion II) p o ide good easons o doub his implici symme y assump-
ion wi h espec o he sign o cos s shocks (posi i e o nega i e). Follow-
ing an ea ly empi ical analysis o p icing asymme ies in he gasoline ma ke
(Bo ens ein e al. [1997]), nume ous empi ical s udies es ima e a ia ions o
an e o co ec ion model o accoun o an asymme ic esponse in he speed
o adjus men o posi i e and nega i e cos s shocks.23
The second es ic ion o he s anda d e o -co ec ion model is ha he
adjus men pa e n is assumed independen o he size o he shock. This
implici assump ion is challenged in empi ical wo k (Godby e al. [2000])
as well as sea ch- heo e ic models (Cab al and Fishman [2012]). P e ious
empi ical con ibu ions in es iga ing asymme ic cos ansmission allow
p ices o espond di e en ly o cos inc eases e sus cos dec eases, and hus
equi e he h eshold o asymme ic esponses o be a ze o change in cos s.
21 Mo e de ails on empi ical applica ions o his model in he gasoline ma ke a e p o ided in
Ecke [2013].
22 We use he Akaike in o ma ion c i e ia (AIC) es s a is ics o selec he op imal lag o de
o each gasoline s a ion. Lue kepohl [1985] and Toda and Yamamo o [1995] show ha hese es
s a is ics will ha e he s anda d asymp o ic p ope ies e en i he a iables a e in eg a ed o o de
1, i.e., I(1). Paulsen [1984] and Nielsen [2001] also show ha he AIC can be used o bo h I(0)
and I(1) a iables.
23 Indeed, hese a icles a e pa o an e en la ge li e a u e examining (asymme ic)
pass- h ough o ups eam cos shocks in a a ie y o indus ies. F ey and Mane a [2007] and
Meye and on C amon-Taubadel [2004] p o ide excellen su eys o he b oade li e a u e wi h
a speci ic ocus on he echnical issues o modeling and es ima ion.
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nomics and John Wiley & Sons L d.

646 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
Godby e al. [2000] ex end his li e a u e such ha his h eshold can ake
any alue, and hus allow small cos changes o be ansmi ed di e en ly
han la ge cos shocks. Th eshold-e ec s also play an impo an ole in ecen
sea ch- heo e ic models. Cab al and Fishman [2012], o example, sugges
ha small cos dec eases a e passed on less quickly han posi i e o la ge
nega i e cos shocks. While Godby e al. [2000] es ima e one h eshold only,
Cab al and Fishman [2012] sugges ha h esholds o p ice inc eases and
dec eases could di e . To accoun o his po en ial asymme y in h esholds,
an empi ical model wi h mo e han one h eshold is equi ed.
In he ollowing, we desc ibe and es ima e such a lexible h eshold
e o -co ec ion model, which allows o (a) an asymme ic esponse in he
speed o adjus men as well as (b) an asymme y in he le el o h esholds o
posi i e and nega i e shocks.
Tes ing o h eshold non-linea i y is a non-s anda d in e ence p ob-
lem since he nuisance pa ame e ( he h eshold) is no iden i ied unde
he null hypo hesis. Consequen ly he asymp o ic dis ibu ions o he es s
a e non-s anda d. This es p oblem is known as he Da ies P oblem
(Da ies [1987]) in non-linea ime se ies models and has been discussed
since by And ews and Plobe ge [1994] and Hansen [1996] in he con ex o
co-in eg a ion. Se e al app oaches a e a ailable o sol e his p oblem based
on he na u e o he ime se ies p ocess.24 We apply he app oach p oposed by
S ikholm and Te äs i a [2015] based on he smoo h ansi ion au o eg es-
sion o de e mine he numbe o egimes, and hus un a sequence o es s:
Fi s , a linea e o -co ec ion model is es ed agains an e o -co ec ion
model wi h wo egimes (one h eshold). Since he null hypo hesis o linea i y
is ejec ed o he majo i y o he s a ions, in he nex s ep we es he model
wi h wo egimes (one h eshold) agains a model wi h h ee egimes ( wo
h esholds). The wo- egimes model is also ejec ed, sugges ing ha he p ice
ansmission p ocess is cha ac e ized by h ee egimes ( wo h esholds).
To es ima e he h esholds we ollow he idea o Chan [1993], who showed
ha he alue o he h eshold minimizing he sum o squa ed e o s om
he long- un equilib ium is a supe -consis en es ima e. Howe e , since he e
a e wo h esholds ha need o be es ima ed, a g id sea ch p ocedu e as dis-
cussed in Ende s and Siklos [2001] is implemen ed. The es ima ed esiduals
om he long- un ela ionship o Equa ion 1a e candida es o he h esh-
olds. These esiduals a e so ed in ascending o de . To ge consis en es ima es
o he pa ame e s o he e o -co ec ion model, a su icien numbe o obse -
a ions in each egime is needed. The e o e, he smalles and he la ges 15%
o he es ima ed esiduals we e d opped and each o he emaining 70% o he
24 Tsay [1989] p oposed he use o esiduals om an a anged au o- eg ession o es o
non-linea beha io . Hansen [1996;1997] p opose an al e na i e me hod o uni a ia e p ocesses
which allows es ima ing (only) one h eshold and he model pa ame e s simul aneously. Fo he
mul i a ia e case, see Hansen and Seo [2002].
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nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 647
alues a e conside ed po en ial h esholds. No e ha he choice o d op he
smalles and la ges 15% is a he a bi a y, bu i is impo an o ensu e a
su icien numbe o obse a ions in each egime. Since la ge (absolu e) al-
ues o h esholds imply a small numbe o obse a ions in he ou e egimes,
we ollowed Ende s and Siklos [2001] and d opped 15%. Based on a ule o
humb o he minimum numbe o obse a ions in each egime p o ided by
Hansen [1999], we sea ch om he 20% o 45% o he emaining a anged
esidual alues o ind he lowe h eshold and om he 55% o 80% o he
a anged esidual alues o ind he uppe h eshold. The es ima ed h esh-
olds ha minimize he esidual sum o squa es in each egime a e he inal
h eshold alues ha we use o es ima e he TECM.
Based on he es esul s and he es ima ed h esholds, he ollowing h esh-
old e o -co ec ion model wi h h ee egimes is es ima ed o each gasoline
s a ion by means o o dina y leas -squa es (OLS):
(3)
ΔPi, =
⎧
⎪
⎪
⎪
⎪
⎨
⎪
⎪
⎪
⎪
⎩
𝜏+
i+𝛾+
iECTi, −1+∑A
a=1𝛿+
1,i,aΔPi, −a+∑B
b=0𝛿+
2,i,bΔCi, −b+𝜂+
i, ,
i ECT −1>𝜃
+
𝜏0
i+𝛾0
iECTi, −1+∑A
a=1𝛿0
1,i,aΔPi, −a+∑B
b=0𝛿0
2,i,bΔCi, −b+𝜂0
i, ,
i 𝜃+≥ECT −1≥𝜃−
𝜏−
i+𝛾−
iECTi, −1+∑A
a=1𝛿−
1,i,aΔPi, −a+∑B
b=0𝛿−
2,i,bΔCi, −b+𝜂−
i, ,
i 𝜃−>ECT −1
The pa ame e s 𝜃+and 𝜃−indica e he uppe and lowe h eshold alues
used o iden i y he h ee egimes. No e ha he e o co ec ion e m is pos-
i i e (nega i e)—and s a ions a e hus in he uppe (lowe ) egime—i hey
a e exposed o a la ge enough nega i e (posi i e) cos shock. The pa ame e s
𝛾+,𝛾0and 𝛾− e e o he speed o adjus men in he uppe , middle and lowe
egimes, while 𝜏+
i,𝜏0
iand 𝜏−
iindica e he espec i e cons an s. The pa ame e s
𝛿1(𝛿2) deno e he sho - un adjus men a es o changes in own p ices (cos s)
and a e es ima ed up o a lag o de o wo. The espec i e e o e ms a e
indica ed by 𝜂+,𝜂0and 𝜂−. Cos inc eases will be passed on mo e quickly o
p ices han cos dec eases i (a) he speed o p ice adjus men o cos inc eases
exceeds he speed o adjus men o cos dec eases (i.e., |𝛾−
i|>|𝛾+
i|) and/o (b)
he adjus men h eshold o p ice inc eases is smalle han o p ice dec eases
(i.e., |
𝜃−|<|
𝜃+|).
While he TECM is e y lexible, es ima ing a la ge numbe o coe icien s
o each gasoline s a ion migh lead o imp ecisely es ima ed pa ame e s.
We p o ide simple , bu less lexible models in he sensi i i y analysis, whe e
we allow o a smalle numbe o egimes only, o es ic he pa ame e s
o be he same ac oss s a ions. This enables us o es ima e he speed and
he pass- h ough a e mo e p ecisely, bu limi s he scope o in es iga ing
asymme ies in cos ansmission.
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nomics and John Wiley & Sons L d.
648 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
TABLE III
DESCRIPTIVE STATISTICS OF ESTIMATED PARAMETERS
Mean S d. De . P5 P 95
Es ima ed Pa ame e s om TECM
Pass- h ough a e (𝜌)1.294 0.213 0.940 1.701
Posi i e h eshold (𝜃+)1.389 0.825 0.365 2.770
Nega i e h eshold (𝜃−)−1.443 0.610 −2.517 −0.667
Speed uppe egime (𝛾+)−0.050 0.034 −0.109 −0.006
Speed middle egime (𝛾0)−0.034 0.225 −0.421 0.266
Speed lowe egime (𝛾−)−0.090 0.047 −0.171 0.005
Speed and Asymme y in Cos T ansmission
A e age speed ou e egimes (|𝛾+|+|𝛾−|
2)0.071 0.029 0.028 0.132
Asymme y in speed (|𝛾−|−|𝛾+|)0.040 0.055 −0.466 0.131
Asymme y in h esholds (|𝜃+|−|𝜃−|)−0.053 0.869 −1.445 1.575
No es: The numbe o obse a ions is 281. P5 and P 95 deno e he 5 h and he 95 h pe cen ile, espec i ely.
IV(ii). Es ima ion Resul s
Equa ions 1and 3a e es ima ed by OLS o each indi idual gasoline s a ion.
Summa y s a is ics on he mos impo an pa ame e es ima es a e p o ided
in Table III. The a e age pa ame e alue o he long- un pass- h ough a e,
ob ained om es ima ing Equa ion 1,is 𝜌 =1.294.25 A e aging pa ame e
es ima es o e all gasoline s a ions, we ind ha he lowe h eshold alues
(
𝜃−=−1.443) a e nea ly iden ical o he uppe ones ( 
𝜃+=+1.389) in abso-
lu e e ms. The a e age speed o p ice inc eases (i.e., he pa ame e alue in he
lowe egime |𝛾−|=0.090) exceeds he speed o p ice dec eases ( he pa ame e
alue es ima ed o he uppe egime |𝛾+|=0.050). The es ima ed adjus men
speed o he middle egime (|𝛾0|=0.034) is smalle in absolu e e ms han he
co esponding pa ame e s o he ou e egimes, consis en wi h Cab al and
Fishman [2012].26 No e ha small pa ame e alues o he middle egime
could be an indica o o s icky p ices ( a he han he consequence o egula ,
bu small p ice changes).
Based on he pa ame e es ima es om he TECM we calcula e h ee a i-
ables measu ing he speed and he asymme y o cos pass- h ough: (i) The
speed o p ice ansmission is de ined as he a e age o he es ima ed speed
pa ame e s in he ou e egimes (|𝛾+|+|𝛾−|
2); (ii) The asymme y in he speed o
p ice ansmission is de ined by he di e ence be ween he lowe and he uppe
speed pa ame e s (|𝛾−|−|𝛾+|). (iii) Finally, he asymme y in he h esholds
is de ined as |
𝜃+|−|
𝜃−|.
25 No e ha we use g oss e ail p ices, so ully ansmi ed cos shocks lead o a pass- h ough
a e 𝜌o 1.2, due o VAT o 20%.
26 Cab al and Fishman [2012] p edic cos ansmission o be slowes o small cos dec eases,
sugges ing he middle egime o s a a |𝜃+|>|𝜃−|=0. Ou empi ical esul s sugges ha dly any
di e ence be ween he h esholds |𝜃+|and |𝜃−|and a lowe h eshold ha is subs an ially smalle
han ze o.
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CONSUMER INFORMATION AND PRICE TRANSMISSION 649
TABLE IV
TEST RESULTS FOR THE SIGNIFICANCE OF PRICE ADJUSTMENT
Hypo hesis # o obse a ions Pe cen
Speed Es ima e in he Uppe Regime
Rejec H0:𝛾+=0 a 1% signi icance le el 107 38
Rejec H0:𝛾+=0 a 5% signi icance le el 158 56
Rejec H0:𝛾+=0 a 10% signi icance le el 191 68
Speed Es ima e in he Middle Regime
Rejec H0:𝛾0=0 a 1% signi icance le el 73 26
Rejec H0:𝛾0=0 a 5% signi icance le el 118 42
Rejec H0:𝛾0=0 a 10% signi icance le el 143 51
Speed Es ima e in he Lowe Regime
Rejec H0:𝛾−=0 a 1% signi icance le el 218 78
Rejec H0:𝛾−=0 a 5% signi icance le el 235 84
Rejec H0:𝛾−=0 a 10% signi icance le el 241 86
No es: The numbe o obse a ions is 281.
The a e age speed o adjus men in he ou e egimes is (|𝛾+|+|𝛾−|
2)=
0.071, which co esponds well wi h es ima es ob ained om a s anda d
e o -co ec ion model in Equa ion 2.27 Rega ding he asymme y in p ice
adjus men , Table III p o ides some suppo o he ‘ ocke s and ea he s phe-
nomenon’ in he speed o adjus men . The calcula ed absolu e di e ence in
he speed o p ice adjus men in he wo ou e egimes is |𝛾−|−|𝛾+|=0.040,
which indica es ha p ices adjus mo e quickly upwa ds han downwa ds
in esponse o cos shocks. A e aging o e all gasoline s a ions, Table III
sugges s only a small asymme y in he adjus men h esholds on a e age
(|
𝜃+|−|
𝜃−|=−0.053).
No e, howe e , ha he pa ame e es ima es o he indi idual gasoline s a-
ions a y conside ably (see Tables IV and V). Table IV sugges s ha he null
hypo hesis o no p ice adjus men (𝛾0=0) is ejec ed o abou hal he gaso-
line s a ions (51%) in he inne egime a he 10% signi icance le el. The same
null hypo hesis is ejec ed o 68% in he uppe egime ( o cos dec eases) and
o 86% o all s a ions in he lowe egime ( o cos inc eases).
Table V ocuses on he di e ence be ween pa ame e es ima es ob ained
om he di e en egimes o each gasoline s a ion. The null hypo hesis o no
di e ence in he speed o p ice adjus men be ween he middle egime and he
uppe egime (be ween he middle egime and he lowe egime) is ejec ed a
he 10% signi icance le el o 75% (69%) o all gasoline s a ions. A s a is ical
es o an asymme y in he speed o p ice adjus men be ween he uppe
and lowe egime ejec s he null hypo hesis (o no signi ican di e ence) o
43% o all gasoline s a ions, despi e he subs an ial di e ence be ween he
es ima ed pa ame e s 𝛾−and 𝛾+on a e age (p obably due o ela i ely la ge
27 The es ima ed speed pa ame e s 𝛾, ob ained om a s anda d e o -co ec ion model, ake a
mean o 0.064 wi h a s anda d de ia ion o 0.029.
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nomics and John Wiley & Sons L d.
650 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
TABLE V
TEST RESULTS FOR ASYMMETRIC PRICE ADJUSTMENT
Hypo hesis # o obse a ions Pe cen
H0:𝛾+=𝛾0
Rejec H0a 1% signi ican le el 91 11
Rejec H0a 5% signi icance le el 172 61
Rejec H0a 10% signi icance le el 211 75
H0:𝛾−=𝛾0
Rejec H0a 1% signi icance le el 102 36
Rejec H0a 5% signi icance le el 158 56
Rejec H0a 10% signi icance le el 194 69
H0:𝛾−=𝛾+
Rejec H0a 1% signi icance le el 33 12
Rejec H0a 5% signi icance le el 79 28
Rejec H0a 10% signi icance le el 121 43
No es: The numbe o obse a ions is 281.
s anda d e o s). The ollowing sec ion aims a in es iga ing hese di e ences
be ween s a ions mo e sys ema ically.
IV(iii). Cos T ansmission and Consume Sea ch: C oss-Sec ion Analysis
In he second s age we es ima e c oss-sec ional eg essions, ela ing a iables
indica ing he speed and he asymme y o p ice ansmission o he con-
sume s’ in o ma ion endowmen s:
(4) 
Yi=𝛼0+𝛼1𝜆i+Xi𝛼2+𝜉i
The a iable 𝜆ideno es he sha e o shoppe s o each gasoline s a ion. The
ec o Xiincludes measu es o local compe i ion and gasoline s a ion cha ac-
e is ics. 𝛼0,𝛼1and 𝛼2a e pa ame e s o be es ima ed and 𝜉ideno es he e o
e m.
The dependen a iable 
Yi ep esen s ou es ima es om he i s s age, indi-
ca ing he speed o he asymme y o cos pass- h ough. In one a ian we use
ou combina ions o speci ic pa ame e es ima es o he i s s age, namely
he es ima ed speed o p ice ansmission (i.e., he a e age speed in he ou e
egimes, |𝛾+|+|𝛾−|
2), he es ima ed long- un pass- h ough a e (𝜌), he es ima ed
pa ame e s on he asymme y in speed (|𝛾−|−|𝛾+|) and he asymme y in
h esholds (|𝜃+|−|𝜃−|). Al e na i ely, we use cumula i e p ice esponse al-
ues (CRV’s) as he dependen a iable 
Yiin he c oss-sec ional analysis.
The ou speci ica ions o eg ession (Equa ion 4) based on speci ic
i s -s age pa ame e s a e es ima ed using di e en es ima ion echniques.
Fi s , we es ima e he eg essions by OLS. In a second app oach, we ollow
he sugges ion o Lewis and Linze [2005] and p o ide weigh ed leas squa e
(WLS) es ima es o hese models, by weigh ing he obse a ions by he in e se
o he s anda d e o s o he dependen a iable es ima es. This accoun s o
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CONSUMER INFORMATION AND PRICE TRANSMISSION 651
he ac ha he dependen a iables in Equa ion 4a e es ima ed pa ame e s
a he han obse ed a iables and ensu es ha Equa ion 4is es ima ed
e icien ly. Thi d, we es ima e he eg ession semi-pa ame ically in o de o
a oid pa ame ic es ic ions o a linea unc ion o he ela ionship be ween
ou measu es o cos ansmission and he sha e o shoppe s 𝜆i. The modi ied
equa ion o he semi-pa ame ic c oss-sec ion model is:
(5) 
Yi=𝛼0+ (𝜆i)+Xi𝛼2+𝜈i,
We use he wo-s ep p ocedu e ou lined in Robinson [1988]. We i s
ob ain non-pa ame ic es ima es o E(
Yi|𝜆i)and E(Xi|𝜆i)and hen
eg ess 
Yi−E(
Yi|𝜆i)on Xi−E(Xi|𝜆) o ob ain a consis en es ima e o
𝛼2. Finally, we eg ess 
Yi−Xi𝛼2agains 𝜆inon-pa ame ically o ob ain ou
es ima e 
(.).
Res ic ing he a en ion o speci ic pa ame e s o he i s -s age eg essions
as indica o s o he speed o he asymme y o cos ansmission has wo
po en ial weaknesses: Fi s , he e ec s o he sho - un changes in p ices and
cos s on e ail p ices, cap u ed by he pa ame e s 𝛿1and 𝛿2, a e no aken in o
accoun . Second, he adjus men o p ices o exogenous cos shocks is a com-
bina ion o he di e en pa ame e s es ima ed by Equa ions 1and 3.E eni
we (do no ) obse e a signi ican impac o ou measu e o consume in o -
ma ion on one o hese pa ame e s, he agg ega e e ec o in o ma ion (when
aking all pa ame e s in o accoun simul aneously) migh be di e en . To
accommoda e hese po en ial weaknesses, we ollow Bo ens ein e al. [1997]
and Lewis [2011] and es ima e cumula i e esponse unc ions. These cumula-
i e esponse alues (CRV’s) measu e he adjus men o e ail p ices o a one
uni change in c ude oil p ices, and a e used as measu es o cos ansmission

Yiwhen es ima ing Equa ion 4.
Following he discussion in Sec ion II, we expec ha gasoline s a ions wi h
la ge sha es o shoppe s exhibi highe pass- h ough a es and highe speed
o p ice ansmission han gasoline s a ions wi h low sha es o shoppe s. The
e ec o he sha e o shoppe s on ou measu es o asymme y is heo e ically
ambiguous.
IV(iii)(a). Pa ame ic E idence
The pa ame ic esul s on he e ec s o consume s’ in o ma ion endowmen s
on he speed, he long- un pass- h ough a e and he asymme y o cos ans-
mission a e epo ed in Table VI. The i s ou columns epo OLS and
WLS eg ession esul s o he speed o p ice ansmission (columns 1 and
2) and he pass- h ough a e (columns 3 and 4). The es ima es show ha a
la ge sha e o in o med consume s is associa ed wi h a highe speed o p ice
ansmission and a highe pass- h ough a e. The pa ame e es ima es a e
signi ican ly di e en om ze o a he 1% signi icance le el o he speed o
adjus men and a he 5% le el o he pass- h ough a e. The esul s epo ed
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652 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
TABLE VI
ESTIMATION RESULTS FOR SPEED,PASS-THROUGH RATE AND ASYMMETRY OF PRICE TRANSMISSION
Speed Pass- h ough
a e Asymme y
in speed Asymme y
in h eshold
OLS WLS OLS WLS OLS WLS OLS WLS
[1] [2] [3] [4] [5] [6] [7] [8]
Sha e o shoppe s (𝜆) 0.031*** 0.031*** 0.218** 0.223** −0.003 −0.001 0.589 0.202
(0.011) (0.011) (0.108) (0.094) (0.025) (0.025) (0.411) (0.421)
# o s a ions wi hin 2 km 0.179*** 0.180*** 0.135 0.164 −0.053 −0.015 0.921 1.560*
(in 100) (0.029) (0.023) (0.158) (0.181) (0.058) (0.050) (0.714) (0.915)
Dis ance o nea es i al s a ion −0.145*** −0.142** −0.922** −0.878* −0.351*** −0.338*** 1.457 1.186
(in 100 km) (0.048) (0.059) (0.439) (0.499) (0.117) (0.130) (1.884) (2.368)
S a ion is loca ed on highway −0.028*** −0.027*** −0.014 −0.002 −0.066*** −0.066*** 0.261 0.162
(0.004) (0.006) (0.031) (0.048) (0.011) (0.012) (0.159) (0.226)
Cons an 0.046*** 0.043*** 1.184*** 1.173*** 0.056*** 0.050*** −0.477* −0.223
(0.008) (0.007) (0.071) (0.062) (0.017) (0.016) (0.263) (0.277)
# o obse a ions 281 281 281 281 281 281 281 281
R20.327 0.344 0.036 0.042 0.118 0.144 0.015 0.012
No es: S anda d e o s a e epo ed in pa en heses. In OLS speci ica ions s anda d e o s a e based on a obus a iance es ima o . In WLS speci ica ions each obse a ion is
weigh ed by he in e se o he s anda d e o s o he dependen a iable es ima es. *** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
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CONSUMER INFORMATION AND PRICE TRANSMISSION 653
in Table VI sugges ha he deg ee o asymme y in cos ansmission is no
ela ed o consume s’ in o ma ion endowmen . Pa ame e es ima es o he
sha e o shoppe s a e no signi ican ly di e en om ze o in models o he
asymme y in speed (columns 5 and 6) as well as o he asymme y in h esh-
olds (columns 7 and 8). Ou esul s hus do no p o ide empi ical suppo
o heo e ical models sugges ing an impac o consume in o ma ion on he
asymme y o h esholds (such as Cab al and Fishman [2012], o example).28
The es ima ed e ec s o consume in o ma ion on p ice ansmission a e
no only s a is ically obus , bu also sizable: I he sha e o shoppe s inc eases
om ze o (all consume s a e ex-an e unin o med) o one (pe ec in o ma-
ion), he speed o p ice ansmission inc eases by abou 0.44 s anda d
de ia ions o he espec i e endogenous a iable. Fu he mo e, he inc ease
in consume in o ma ion o he same amoun causes he pass- h ough a e
o inc ease by 1.04 s anda d de ia ions ( e e ing o he esul s o he WLS
eg essions).
Wi h ega ds o he con ol a iables, Table VI sugges s ha he speed o
cos ansmission as well as he pass- h ough a e inc ease wi h he deg ee o
compe i ion (i.e., inc eases wi h he numbe o compe i o s wi hin he local
ma ke and dec eases wi h he dis ance o he nea es i al), al hough no all
pa ame e es ima es a e signi ican ly di e en om ze o. Rega ding he asym-
me y in speed, we ind ha compe i ion is associa ed wi h mo e pass- h ough
asymme y. Acco ding o columns 5 and 6, an inc ease in he dis ance o he
nea es i al (i.e., a educ ion in he in ensi y o compe i ion) signi ican ly
educes asymme y in he speed o adjus men ( he pa ame e es ima es a e
signi ican ly di e en om ze o a he 1% signi icance le el). The eg ession
esul s on he asymme y in he h esholds a e less clea . None o he pa am-
e e es ima es in column 7 is signi ican ly di e en om ze o and he posi i e
e ec o he numbe o i al s a ions on h eshold asymme y epo ed in
column8 issigni ican lydi e en omze oa he 10% le elonly. Acco ding o
Table VI, gasoline s a ions loca ed on he highway adjus p ices mo e slowly
(columns 1 and 2) bu ha e simila long- un pass- h ough a es (columns 3
and 4). Rega ding di e ences in p icing asymme ies be ween highway s a-
ions and o he gasoline s a ions, ou esul s a e ambiguous. Focusing on he
speed o adjus men , gasoline s a ions on he highway end o adjus p ices
mo e symme ically (pa ame e es ima es a e signi ican ly di e en om ze o
28 No e ha ou empi ical model is no a o mal es o Cab al and Fishman’s model. The
au ho s do no make speci ic p edic ions abou he sha e o shoppe s, because all consume s ha e
homogeneous (and s ic ly posi i e) sea ch cos s. In hei model, e ail p ice ola ili y induces
consume s o sea ch he ma ke and he e o e makes he ma ke mo e compe i i e, which implies
lowe p o i s. I he numbe o consume s wi h posi i e sea ch cos s declines (because he sha e
o shoppe s inc eases), discou aging non-shoppe s om sea ching becomes less impo an . Con-
sequen ly, he ange o cos changes o which p ices a e s icky should sh ink. The asymme y
o h esholds is he e o e expec ed o decline wi h be e in o med consume s, a esul we do no
ind in ou da a.
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nomics and John Wiley & Sons L d.
654 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
a he 1% signi icance le el in columns 5 and 6). We do no obse e a sig-
ni ican e ec o his dummy a iable on p icing asymme y wi h espec o
adjus men h esholds.
IV(iii)(b). Semi-Pa ame ic E idence
In his sec ion we show ha ou esul s on he ela ionship be ween in o -
ma ion and p ice ansmission a e no d i en by he pa ame ic es ic ions
o a linea unc ion. The esul s ob ained o he non-pa ame ic compo-
nen s o Equa ion 5a e illus a ed in Figu e 1. The igu es a e based on a
ke nel-weigh ed local polynomial eg ession.29 The g aphs indica e a posi i e
ela ionship be ween he sha e o shoppe s and bo h he speed o cos ans-
mission (Figu e 1(a)) and he pass- h ough a e (b). The e ec s o consume s’
in o ma ion endowmen s on he asymme y in speed (c) is U-shaped, while
he asymme y in h esholds (d) does no sugges a clea ela ionship wi h
he sha e o in o med consume s. Compa ing panels (a) and (b) wi h (c) and
(d), we obse e ha he con idence bands o he speed and pass- h ough a e
a e a he small ela i e o he s eepness o he cu es, sugges ing ha his
ela ionship is s a is ically mo e obus han he e ec o in o ma ion on he
asymme y o cos ansmission (in panels (c) and (d)).
A es p o ided by Ha dle and Mammen [1993], epo ed in Table A.I
in Appendix A, shows ha he non-pa ame ic ela ionships be ween he
sha e o shoppe s and he a iables on he speed and he asymme y o cos
ansmission p o ide a be e model i compa ed o a simple cons an o all
endogenous a iables, excep he asymme y in speed (c). The es s a is ics
con i m ha he model i o a non-pa ame ic speci ica ion is no be e
han a linea ela ionship o he pass- h ough a e (b), while he ela ionship
be ween he sha e o shoppe s and he speed (a) and he asymme y in
h esholds (d) is nonlinea . Gene ally, hese esul s con i m he indings o
he pa ame ic speci ica ions epo ed and discussed abo e: cos changes a e
passed on mo e quickly and ully i consume s a e be e in o med, while he
in luence o consume in o ma ion on he asymme y o p ice ansmission
is less clea .
IV(iii)(c). In es iga ing Cumula i e Response Func ions
The p e ious c oss-sec ional analysis in es iga es indi idual ansmission
pa ame e s (adjus men speed, pass- h ough a e and asymme y in speed
and h esholds) ob ained om Equa ions 1and 3sepa a ely, while we ocus
on cumula i e p ice esponse alues (CRV’s) as measu es o cos ansmis-
sion he e. Mo e speci ically, we calcula e he alues o cumula i e esponse
29 The pa ame ic esul s on he con ol a iables a e simila o he non-pa ame ic eg essions
epo ed in Table VI. The esul s a e epo ed in Table A.I in Appendix A.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 661
TABLE VIII
ESTIMATION RESULTS FOR SPEED,PASS-THROUGH RATE AND ASYMMETRY OF PRICE TRANSMISSION CONTROLLING FOR COMMUTER
HETEROGENEITY
Speed Pass- h ough
a e Asymme y
in speed Asymme y
in h eshold
OLS WLS OLS WLS OLS WLS OLS WLS
[1] [2] [3] [4] [5] [6] [7] [8]
Sha e o shoppe s (𝜆) 0.032*** 0.032*** 0.224** 0.228** −0.004 −0.001 0.671 0.271
(0.011) (0.011) (0.109) (0.094) (0.025) (0.024) (0.410) (0.424)
A e age commu ing dis ance −0.000 0.000 0.005** 0.005** 0.002*** 0.002*** −0.005 −0.001
(condi ional on # o s a ions) (0.000) (0.000) (0.003) (0.002) (0.001) (0.001) (0.010) (0.010)
# o s a ions wi hin 2km 0.179*** 0.181*** 0.204 0.225 −0.030 0.005 0.913 1.608*
(in 100) (0.029) (0.023) (0.163) (0.182) (0.057) (0.050) (0.731) (0.917)
Dis ance o nea es i al s a ion −0.141*** −0.143** −1.164** −1.129** −0.440*** −0.430*** 1.775 1.338
(in 100 km) (0.049) (0.061) (0.468) (0.510) (0.129) (0.131) (1.947) (2.450)
S a ion is loca ed on highway −0.028*** −0.027*** −0.006 0.004 −0.062*** −0.063*** 0.243 0.152
(0.004) (0.006) (0.030) (0.048) (0.012) (0.012) (0.159) (0.226)
Cons an 0.045*** 0.043*** 1.181*** 1.172*** 0.056*** 0.050*** −0.521** −0.262
(0.008) (0.007) (0.071) (0.062) (0.017) (0.016) (0.262) (0.279)
# o obse a ions 280 280 280 280 280 280 280 280
R20.328 0.345 0.052 0.059 0.148 0.176 0.017 0.013
No es: S anda d e o s a e epo ed in pa en heses. In OLS speci ica ions s anda d e o s a e based on a obus a iance es ima o . In WLS speci ica ions each obse a ion is
weigh ed by he in e se o he s anda d e o s o he dependen a iable es ima es. *** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
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nomics and John Wiley & Sons L d.

662 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
addi ional a iable in all model speci ica ions. These esul s sugges ha ans-
po a ion cos s seem o play some ole in explaining p ice ansmission in
addi ion o he in o ma ion e ec . We ha e o acknowledge ha his p oce-
du e is a om ideal in sepa a ing he in o ma ion om he anspo a ion
cos e ec , because commu e s a e he e ogeneous in many dimensions. Com-
mu e s a elling long dis ances, o example, a e no only cha ac e ized by
low anspo a ion cos s, bu also by high demand. A en a i e in e p e a ion
o he esul s, howe e , poin s in he di ec ion ha consume s’ in o ma ion
endowmen s a e indeed impo an in i ms’ decisions on how o pass h ough
cos shocks o consume s.
V(ii). Resul s Using Less Flexible Model Speci ica ions
Compa ed o p e ious empi ical s udies, we use a TECM speci ica ion in he
i s s age o he p esen analysis, because his app oach is e y lexible: he
model es ima es a la ge numbe o pa ame e s sepa a ely o each s a ion,
allows o a la ge deg ee o he e ogenei y ac oss i ms, and hus enables us
o in es iga e p edic ions on he speed and he asymme y o cos ansmis-
sion de i ed om a a ie y o heo e ical pape s. The downside o his lexible
app oach is ha some pa ame e s migh be imp ecisely es ima ed. Table III
shows subs an ial di e ences in pa ame e es ima es ac oss s a ions in he i s
s age, and Table IV indeed sugges s la ge s anda d e o s o many o hem.
Fo example, he speed pa ame e s 𝛾 epo ed in Table IV a e no signi ican ly
di e en om ze o a he 10% signi icance le el o 32% (14%) o all s a ions
in he uppe (lowe ) egime. When we es ima e a s anda d ECM (Equa ion 2)
ins ead o he lexible TECM (Equa ion 3), he speed pa ame e s a e signi i-
can ly di e en om ze o o all 281 s a ions in ou sample, because s anda d
e o s o he pa ame e es ima es a e subs an ially smalle . In he ollowing
sensi i i y analysis, we es ima e eg ession models based on simple and less
lexible speci ica ions o he i s s ep o he analysis o ob ain pa ame e es i-
ma es which a e mo e p ecisely es ima ed.
We i s e alua e he speed o p ice adjus men and es ima e an asymme -
ic ECM wi h one h eshold exogenously se o ze o.34 The es ima ed speed
pa ame e s 𝛾+and 𝛾−allow us o in es iga e he a e age and he asymme y
o he adjus men speed. C oss-sec ion esul s using hese pa ame e es ima es
a e epo edinTableIX. Consis en wi hou p e ious esul s,columns 1and 2
o Table IX show ha he a e age speed o p ice adjus men inc eases wi h
he sha e o shoppe s 𝜆. Again, we do no obse e a signi ican ela ionship
be ween he sha e o shoppe s and he asymme y in he speed o p ice adjus -
men (see columns 3 and 4). In his less lexible model, any asymme ic p ice
adjus men is cap u ed by asymme ies in he adjus men speed since (asym-
me ic) h eshold e ec s a e no included in his speci ica ion. I we u he
34 This app oach is used by Galeo i e al. [2003] and G asso and Mane a [2007], o example.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 663
TABLE IX
ESTIMATION RESULTS FOR SPEED AND ASYMMETRY OF PRICE TRANSMISSION BASED ON SIMPLER ERROR CORRECTION MODELS
Speed
asymme ic ECM
(one h eshold: 𝜃=0)
Asymme y in speed
asymme ic ECM
(one h eshold: 𝜃=0)
Speed
s anda d ECM
(no h eshold)
OLS WLS OLS WLS OLS WLS
Model used in ime-se ies analysis [1] [2] [3] [4] [5] [6]
Sha e o shoppe s (𝜆) 0.027** 0.025* 0.005 0.006 0.038*** 0.037***
(0.013) (0.013) (0.025) (0.025) (0.011) (0.011)
# o s a ions wi hin 2 km 0.172*** 0.163*** −0.074 −0.013 0.181*** 0.180***
(in 100) (0.038) (0.028) (0.054) (0.051) (0.026) (0.023)
Dis ance o nea es i al s a ion −0.080 −0.094 −0.274** −0.261** −0.121** −0.104*
(in 100 km) (0.098) (0.069) (0.113) (0.128) (0.049) (0.054)
S a ion is loca ed on highway −0.020*** −0.018*** −0.061*** −0.060*** −0.026*** −0.025***
(0.004) (0.006) (0.009) (0.012) (0.005) (0.005)
Cons an 0.065*** 0.064*** 0.057*** 0.049*** −0.034*** −0.030***
(0.009) (0.009) (0.018) (0.016) (0.007) (0.007)
# o obse a ions 281 281 281 281 281 281
R20.193 0.201 0.092 0.121 0.313 0.345
No es: Reg ession esul s in columns 1 o 4 a e based on an asymme ic ECM wi h one h eshold exogenously se o ze o. Resul s in columns 5 and 6 a e based on a s anda d ECM.
S anda d e o s a e epo ed in pa en heses. In OLS speci ica ions s anda d e o s a e based on a obus a iance es ima o . In WLS speci ica ions each obse a ion is weigh ed
by he in e se o he s anda d e o s o he dependen a iable es ima es. *** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
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664 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
simpli y he analysis and es ima e a s anda d ECM (wi hou any h esholds),
we ob ain only one speed pa ame e 𝛾 o each s a ion. Using hese pa ame-
e es ima es in a c oss-sec ion analysis, we again conclude ha he adjus men
speed depends posi i ely on he sha e o in o med consume s, as epo ed in
columns 5 and 6 o Table IX. No e ha he in luence o he sha e o shop-
pe s 𝜆on he speed o p ice ansmission is i ually iden ical o he esul s
ob ained om he lexible TECM, epo ed in Table VI.
Fu he mo e, we e alua e he long- un ela ionship be ween e ail p ices
andcos s (seeEqua ion1) oge he wi h he s anda dECM (Equa ion 2)using
a one-s ep app oach. We s a by applying a pooled mean-g oup (PMG) es i-
ma o , ou linedin Pesa an e al. [1999], which allows he sho - un coe icien s
(in pa icula he speed pa ame e s in he s anda d ECM) o a y ac oss s a-
ions, bu cons ains he long- unpass- h ough a e 𝜌 obe he same o alls a-
ions.35 The esul sob ained om his model, epo edin column1 o TableX,
show ha he pa ame e es ima es o he pass- h ough a e 𝜌( o C −1) and he
ansmission speed 𝛾( o ECT −1) a e simila o he a e age o he pa ame-
e alues ob ained when es ima ing he ime se ies sepa a ely o each s a ion
(as epo ed in Table III). Including an in e ac ion e m be ween cos s C −1
and he sha e o shoppe s 𝜆in column 2 shows ha he in e ac ion e m is
posi i e and signi ican ly di e en om ze o a he 1% le el. This sugges s
ha he pass- h ough a e is highe i consume s a e be e in o med, which
suppo s he esul s o ou main speci ica ion. To u he simpli y he speci-
ica ion, we ollow Del as [2008] and es ic he pa ame e s in he s anda d
ECM o be iden ical o all s a ions, and allow o di e en in e cep s only.
Wi h his dynamic ixed-e ec s es ima o , he long- un ela ionship be ween
cos s and p ices (Equa ion 1) and he s anda d ECM (Equa ion 2)a ees i-
ma ed simul aneously in one panel model.36 The esul s, epo ed in he inal
column (3) o Table X, again sugges a signi ican ly highe pass- h ough a e
𝜌 o s a ions acing be e in o med consume s.
V(iii). Addi ional Sensi i i y Analyses
In o de o con i m ha ou esul s a e no d i en by he pa icula model
speci ica ions o by a small sub-sample in ou da a, we p o ide a numbe o
obus ness exe cises. The esul s con i m he main indings epo ed abo e.
35 We employ he p ocedu e discussed by Blackbu ne and F ank [2007], who implemen he
PMG es ima o in S a a. We also pe o m speci ica ion es s o panel da a be o e es ima ion:
Tes ing he e o e ms o he dynamic panel models (pmg and d e) o weak c oss-sec ional
dependence, as p oposed by Pesa an [2015], indica es no c oss-sec ional dependence in he da a.
The coin eg a ion es s o Kao [1999], Ped oni [1999], Ped oni [2004] and Wes e lund [2005] sug-
ges ha we can ejec he null hypo hesis o no coin eg a ion in all panels.
36 The esul s a e based on a educed- o m ixed e ec s panel es ima ion, and he pa ame e s
o he long- un ela ionship a e eco e ed om his es ima ion. See Bo ens ein e al. [1997]o
Blackbu ne and F ank [2007] o de ails.
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CONSUMER INFORMATION AND PRICE TRANSMISSION 665
TABLE X
PANEL MEAN GROUP (PMG) AND DYNAMIC FIXED EFFECTS (DFE) ESTIMATES
PMG PMG DFE
[1] [2] [3]
Long-Run Rela ionship
C −11.321*** 1.183*** 1.198***
(0.013) (0.044) (0.048)
Indica o Va . o yea 2004 0.033*** 0.033*** 0.034***
(0.001) (0.001) (0.001)
C −1×SIC 0.261*** 0.234***
(0.080) (0.085)
Sho -Run Rela ionship
ECT −1−0.059*** −0.059*** −0.055***
(0.002) (0.002) (0.001)
ΔP −1−0.104*** −0.104*** −0.125***
(0.004) (0.004) (0.002)
ΔP −2−0.022*** −0.022*** −0.034***
(0.003) (0.003) (0.002)
ΔC 0.112*** 0.104*** 0.108***
(0.004) (0.004) (0.007)
ΔC −10.078*** 0.078*** 0.087***
(0.006) (0.006) (0.007)
ΔC −20.047*** 0.047*** 0.058***
(0.004) (0.004) (0.007)
Cons an 0.039*** 0.039*** 0.036***
(0.001) (0.001) (0.001)
# o obse a ions 197,262 197,262 197,262
No es: Reg ession esul s in columns 1 and 2 a e ob ained by using he panel mean g oup es ima o . Resul s
in column 3 a e based on a dynamic ixed e ec s es ima o . S anda d e o s a e epo ed in pa en heses.
*** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
Fo easons o space, hey a e only b ie ly men ioned he e and a e epo ed in
Appendix A.
Fi s , we use a a he pa simonious model in he main speci ica ions.
Table A.II epo s eg ession esul s including a la ge numbe o con ol
a iables o accoun o p oduc and s a ion he e ogenei y. The poin es i-
ma es and he signi icance le els o he pa ame e es ima es on he sha e o
shoppe s 𝜆a e ba ely a ec ed by his modi ica ion, indica ing ha he e is
no omi ed a iable bias wi h espec o s a ion he e ogenei y.
Second, he same analysis is ca ied ou o sub-samples only: In one
speci ica ion we es ima e he same eg ession as epo ed in Table VI,bu
exclude highway loca ions. S a ions loca ed on highways a e o en conside ed
o cons i u e a sepa a e ma ke ,37 di e conside ably om s a ions o he
highway ega ding compe i ion, demand and egula ions, and may he e o e
exhibi e y di e en p ice dynamics. Excluding highway s a ions ensu es
ha ou esul s a e no d i en by his small g oup o s a ions. The eg essions
37 The Aus ian compe i ion au ho i y inds ha s a ions loca ed on highways usually cha ge
highe p ices, and ha he e is li le compe i ion be ween s a ions on he highway and o -highway
s a ions (G ube and Puglisi [2010]).
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666 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
wi hou hese s a ions, epo ed in Table A.III, howe e , indica e ha he
esul s a e ha dly a ec ed by his modi ica ion. In a second speci ica ion
we exclude s a ions ha do no change p ices e y o en. In he ime pe iod
unde sc u iny, p ices a e changed e e y 4.35 days on a e age. I we exclude
10% o s a ions ha adjus ed hei p ices leas o en, he pa ame e es ima es
o he sha e o shoppe s a e ha dly a ec ed, as epo ed in Table A.IV.In
ano he speci ica ion, we exclude s a ions wi h he highes o he lowes
es ima ed pass- h ough a es 𝜌, o ensu e ha ou esul s a e no d i en by
ou lie s. The eg ession esul s excluding he 5% o s a ions wi h ei he he
highes o he lowes pass- h ough a es a e epo ed in Table A.V. Again,
he poin es ima es a e e y simila compa ed o he main esul s ( epo ed
in Table VI).
Thi d, we include he numbe o commu e s and he numbe o non-
commu e s (in loga i hmic e ms) ins ead o he sha e o in o med consume s.
The esul s a e p o ided in Table A.VI in Appendix A. The numbe o com-
mu e s has a signi ican ly posi i e e ec on he speed and he pass- h ough
a e, as well as on he asymme y in speed. We ind he opposi e e ec s o
non-shoppe s. A la ge numbe o unin o med cus ome s educes he speed
o cos ansmission and he pass- h ough a e signi ican ly. No signi ican
e ec o non-shoppe s is iden i ied o he asymme y in speed and p icing
h esholds. This seems o sugges ha i does no ma e whe he a la ge
sha e o shoppe s 𝜆is due o many shoppe s o a ew non-shoppe s. Bo h
consume g oups a e no signi ican ly ela ed o he asymme y in h esholds,
in line wi h he esul s o he main speci ica ions epo ed in Table VI.
Fou h, we use wo al e na i e ways o cons uc he sha e o in o med
consume s 𝜆by weigh ing one o bo h consume g oups di e en ly: (i) In
he i s es ima ion expe imen , we e ain om weigh ing commu e lows
by he numbe o po en ial ou es when calcula ing he sha e o in o med
consume s 𝜆.38 (ii) In a second es ima ion exe cise, we weigh commu e s
(non-commu e s) by he numbe o gas s a ions along hei commu ing ou e
(in hei municipali y o esidence). This is mo i a ed by he no ion ha
long-dis ance commu e s may pass by a la ge numbe o gasoline s a ions
and a e hus unlikely o e uel a a pa icula one. Simila ly, he p oba-
bili y o a speci ic s a ion’s a ac ing a non-commu e declines wi h he
numbe o i al s a ions loca ed in he same municipali y. The eg ession
esul s o bo h es ima ion expe imen s a e epo ed in Table A.VII and
Table A.VIII, espec i ely. In bo h cases, he impac o he sha e o shoppe s
on he speed and he pass- h ough a e o p ice ansmission is posi i e
and signi ican ly di e en om ze o, while we do no obse e a signi ican
e ec o ou measu es o consume in o ma ion on he asymme y o p ice
adjus men .
38 No e ha in he main speci ica ion, ansi commu e s a e weigh ed by he sha e o possible
ou es passing by a pa icula gasoline s a ion (see oo no e 16).
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CONSUMER INFORMATION AND PRICE TRANSMISSION 667
And inally, we examine he sensi i i y o ou esul s o da a equency. I is
well known ha agg ega ion o e ime can lead o biased pa ame e es ima es
i he in e empo al lag dis ibu ion is no p ope ly speci ied (Geweke [1978];
Bachmeie and G i in [2003]; Chesnes [2016]). Geweke [1978] sugges s a
‘p ac ical p ocedu e which will indica e in a quali a i e way he ex en o he
empo al agg ega ion p oblem in a pa icula applica ion,’ which in ol es
es ima ing he ela ion o in e es ‘a wo di e en le els o agg ega ion,
he ines possible and one o he ’ (p. 654). Following his sugges ion, we
e-es ima e ou model using weekly ins ead o daily p ice obse a ions. Mo e
speci ically, we use p ices o each gasoline s a ion on e e y Tuesday39 and
es ima e i s he long- un ela ionship be ween e ail p ices and cos s o
Equa ion 1and hen he e o -co ec ion models o Equa ions 2and 3.40 The
sequen ial es p ocedu e o es o he numbe o egimes, as ou lined in
Sec ion IV(i), suppo s a model wi h h ee egimes o 224 ou o 281 gasoline
s a ions a he 5% signi icance le el, whe eas o 57 s a ions he es sugges s
a linea e o -co ec ion model.
Using weekly p ice da a, he pa ame e es ima es o he pass- h ough
a e (𝜌) and a ec ed, as epo ed in Table A.IV he h esholds (𝜃+and 𝜃−)
a e simila o hose based on daily e ail p ices, epo ed in Table III.The
speed pa ame e s 𝛾a e subs an ially la ge in absolu e e ms when using
lowe - equency da a, because hey desc ibe he adjus men p ocess wi hin
a week a he han wi hin a day (see Table C.IV in Online Appendix C o
de ails). Based on hese pa ame e es ima es, we e-es ima e he c oss-sec ion
eg ession (4). Compa ing he esul s based on weekly da a, epo ed in
Table A.IX, wi h he analysis based on daily p ice obse a ions (see Table VI)
sugges s ha da a equency does no in luence he impac o consume in o -
ma ion on mos dimensions o p ice ansmission. The sha e o shoppe s
𝜆exe s a signi ican and posi i e impac on he speed o p ice adjus men
as well as on he pass- h ough a e, and does no con ibu e signi ican ly o
he a ia ion in he asymme y in speed. In con as o Table VI,howe e ,
Table A.IX sugges s a signi ican and nega i e impac on he asymme y
in h esholds: a la ge sha e o in o med consume s signi ican ly educes
asymme ies in h esholds, which unde lines he impo ance o in es iga ing
p icing h esholds (as sugges ed by Cab al and Fishman [2012], o example).
Da a equency hus seems o ma e when in es iga ing p icing asymme ies
in h esholds.
39 We selec p ices on e e y Tuesday, since i u ns ou ha p ices a e mos likely o adjus on
his day o he week. An al e na i e p ocedu e (no chosen he e) in ol es calcula ing (mo ing)
a e ages o e a pe iod o se en days. This would imply ha he calcula ed p ice possibly ne e
ac ually has been chosen. Using he weekly p ice se ies based on a pa icula day o he week
a oids his issue.
40 Simila ly o he analysis wi h daily da a, we use he Akaike in o ma ion c i e ia (AIC) es
s a is ics o selec he op imal lag o de o each gasoline s a ion. Fo he majo i y o he gasoline
s a ions we use a lag o de o wo.
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668 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
VI. DISCUSSION AND CONCLUSIONS
This a icle in es iga es he ela ionship be ween consume in o ma ion and
p ice dynamics. We u ilize high- equency p ice da a o indi idual e ail
gasoline s a ions o a leading e ically in eg a ed company o ob ain es i-
ma es o cos shocks (changes in c ude oil p ices) on he a ious dimensions
o p ice ansmission (i.e., he pass- h ough a e as well as he speed and
asymme y o p ice adjus men ). Ou measu e o consume in o ma ion
is cons uc ed by using de ailed da a on commu ing pa e ns. Commu e s
can eely sample p ices a gasoline s a ions along hei commu ing pa h
and hus end o be be e in o med han non-commu e s. We use da a
o a ime pe iod when websi es p o iding comp ehensi e and up- o-da e
in o ma ion on gasoline p ices we e no ye a ailable and isi ing a speci ic
gasoline s a ion was he only way o mos consume s o lea n abou cu en
gasoline p ices a ha s a ion. The iden i ica ion s a egy o he causal e ec
o consume in o ma ion on p ice adjus men elies on he ac ha ou
measu e o consume in o ma ion is de e mined by consume s’ long- un
decisions o commu e, which a e a guably independen o sho - un p ice
dynamics.
The esul s show ha gasoline s a ions wi h a highe sha e o in o med
consume s ha e la ge cos pass- h ough a es and adjus p ices mo e
quickly o exogenous cos shocks. This inding is consis en wi h implica-
ions o sea ch- heo e ic models (see Tappa a [2009]; Yang and Ye [2008];
Lewis [2011]). I also ela es o he li e a u e on p ice anspa ency and
i s e ec s on compe i ion by showing ha he p esence o be e in o med
consume s makes a ma ke mo e compe i i e. Recen empi ical e idence on
in o ma ion disclosu e in he e ail gasoline ma ke (Dewen e e al. [2017];
Luco [2019]) sugges s ha he an icompe i i e e ec o p ice anspa ency,
due o acili a ing collusion among i ms, ou weighs he compe i i e e ec
due o lowe consume sea ch cos s. No e ha he p esen s udy p o ides
an indica o o an ‘in o ma ion clea inghouse’ ha canno be accessed
by i ms and hus isola es and iden i ies he e ec o be e in o med
consume s.41
Ou analysis u he con ibu es o he la ge empi ical li e a u e on asym-
me ies in p ice adjus men s ( he ‘ ocke s and ea he s phenomenon’). While
a common s a egy o exis ing s udies o examine possible asymme ies
is o p e-speci y wo egimes in an ad-hoc manne , he p esen analysis
endogenously iden i ies mul iple egimes by applying a sequen ial model
41 I is wo h emphasizing ha we measu e in o ma ion abou p ices on he consume s’ side.
Access o p ice compa ison apps and websi es, in con as , would no only imp o e consume
in o ma ion bu would also make i easie o i ms o moni o each o he ’s p ices. In such se -
ings, inc eased anspa ency may hus acili a e collusion be ween i ms which would impede he
iden i ica ion o he e ec s o consume in o ma ion on p ice dynamics.
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CONSUMER INFORMATION AND PRICE TRANSMISSION 669
selec ion app oach. This p ocedu e sugges s ha he p ice adjus men p o-
cess is bes cha ac e ized by h ee egimes ( wo h esholds). Es ima ing
mul iple h eshold e o -co ec ion models allows us o di e en ia e be ween
an asymme y in he speed o p ice ansmission and an asymme y in
h esholds. The empi ical analysis e eals (a) signi ican asymme ies in p ice
adjus men o a la ge numbe o gasoline s a ions and (b) subs an ial he e o-
genei y be ween gasoline s a ions wi h espec o bo h measu es o adjus men
asymme ies. Howe e , ou esul s do no p o ide unambiguous suppo o
heo e ical models sugges ing ha p icing asymme ies a e ela ed o he
deg ee o consume in o ma ion. We do no obse e a signi ican impac o
he sha e o commu e s (in o med consume s) on asymme ies in speed, and
he ela ionship be ween consume in o ma ion and asymme ies in p icing
h esholds seems o depend on da a equency.
Finally, ou s udy complemen s he empi ical li e a u e on he e ec s
o commu ing (as an indica o o consume s’ in o ma ion endowmen s) on
i ms’ p icing beha io in he e ail gasoline ma ke . Penne s o e e al. [2020]
d aw on simila measu es o consume in o ma ion based on he same da a on
commu ing,and ind ha p icele els a e lowe in egions wi h a la ge sha eo
commu e s, while he ela ionship be ween in o ma ion and p ice dispe sion
is cha ac e ized by an in e se-U. Thei empi ical in es iga ion—co e ing a
longe ime pe iod ( om Oc obe , 1999, o Ma ch, 2005) and a la ge numbe
o gas s a ions—d aws on p ice in o ma ion collec ed much less equen ly
and uses qua e ly da a. Penne s o e e al. [2020] a e in e es ed in long- un
di e ences in p ice le els and p ice dispe sion be ween local ma ke s wi h
poo ly and well in o med consume s only. In con as , he p esen a icle uses
high- equency in o ma ion on bo h p ices and ma ginal cos s, which allows
us o in es iga e sho - un (in ac , daily) p ice esponses o cos changes as
well as hei ela ion o consume in o ma ion. Based on he indings o bo h
s udies, we conclude ha consume in o ma ion no only in luences he le el
o p ices and p ice dispe sion, bu also he dynamics o p ice adjus men and
hus he unc ioning o ma ke s.
In he end, we poin ou h ee impo an issues in his esea ch a ea which
ha e no been con incingly add essed so a (including he p esen analysis).
Fi s , while commu ing is a sou ce o in o ma ion o consume s ( a he han
i ms) and gene a es an a guably exogenous measu e o consume in o ma-
ion, i is impo an o no e ha commu e s and non-commu e s also di e
in he anspo a ion cos s hey incu when isi ing gasoline s a ions. We
p o ide a i s a emp o di e en ia e be ween he impac o anspo a ion
cos s and consume in o ma ion on p ice ansmission in his a icle. Mo e
de ailed empi ical and heo e ical wo k on his issue mus be pos poned o
u u e esea ch. Second, consume in o ma ion could also in luence ma ke
s uc u e. A highe sha e o in o med consume s inc eases he p ice elas ici y
o demand, lowe s i ms’ p ice-cos ma gins and hus educes he numbe o
i ms in equilib ium. In he con ex o he p esen pape , his would imply
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670 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
ha consume in o ma ion could in luence p ice ansmission indi ec ly ia a
‘ma ke s uc u e channel.’42 While he impac o in o ma ion ( anspa ency)
on ma ke s uc u e (numbe o i ms and p oduc a ie y) is well unde s ood
in heo y (Schul z [2009]; Gu and Wenzel [2011]), a ca e ul empi ical analysis
(ex ending Seim’s [2006] analysis, o example) is s ill lacking. Thi d, his
analysis applies a ious measu es o he g adual adjus men o indi idual
p ices. Howe e , we do no explici ly add ess one impo an dimension o
p ice adjus men : he equency o p ice changes. P ices do change in e-
quen ly o many e ail ansac ions and a ious explana ions ha e been
p omo ed o explaining di e en spells o unchanged p ices (Wolman [2007];
Nakamu a and S einsson [2008]). In es iga ing he impac o consume
in o ma ion on he equency o p ice adjus men would u he imp o e
ou unde s anding abou he dynamics o p ice adjus men and hus he
unc ioning o ma ke s.
APPENDIX A
ADDITIONAL REGRESSION TABLES
TABLE A.I
PARAMETRIC RESULTS OF SEMI-PARAMETRIC REGRESSIONS
Speed Pass- h ough
a e Asymme y
in speed Asymme y
in h eshold
# o s a ions wi hin 2 km 0.181*** 0.167 −0.059 1.430*
(in 100) (0.024) (0.208) (0.052) (0.851)
Dis ance o nea es i al s a ion −0.158** −1.356** −0.505*** −0.598
(in 100 km) (0.074) (0.653) (0.163) (2.668)
S a ion is loca ed on highway −0.027*** −0.007 −0.062*** 0.264
(0.006) (0.056) (0.014) (0.227)
# o obse a ions 281 281 281 281
R20.292 0.025 0.124 0.015
Ha dle and Mammen [1993] speci ica ion es s a is ic
polynomial o deg ee 0 4.034 1.832 0.535 2.119
[p =0.00] [p =0.06] [p =0.48] [p =0.04]
polynomial o deg ee 1 1.877 0.979 1.132 2.776
[p =0.05] [p =0.34] [p =0.32] [p =0.00]
polynomial o deg ee 2 1.468 1.045 0.429 2.418
[p =0.12] [p =0.29] [p =0.76] [p =0.00]
No es: S anda d e o s a e epo ed in pa en heses. *** signi ican a 1%, ** signi ican a 5%,
* signi ican a 10% le el. Ha dle and Mammen [1993] speci ica ion es s e alua e whe he he non-pa ame ic
i can be app oxima ed by a pa ame ic adjus men o o de ze o, one o wo, espec i ely (H0: pa ame ic
and non-pa ame ic i s a e no di e en ). In e ence is based on a wild boo s ap es ing p ocedu e wi h 100
eplica ions.
42 We a e hank ul o a e e ee o making us awa e o his po en ial e ec .
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nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 677
TABLE A.VIII
ESTIMATION RESULTS FOR SPEED,PASS-THROUGH RATE AND ASYMMETRY OF PRICE TRANSMISSION,USING ALTERNATIVE WEIGHTS
Speed Pass- h ough
a e Asymme y
in speed Asymme y
in h eshold
OLS WLS OLS WLS OLS WLS OLS WLS
Sha e o shoppe s (𝜆al e na i e weigh s) 0.040*** 0.041*** 0.306*** 0.281*** 0.013 0.015 0.202 −0.066
(0.009) (0.010) (0.082) (0.080) (0.021) (0.021) (0.383) (0.381)
# o s a ions wi hin 2 km 0.138*** 0.138*** −0.166 −0.136 −0.055 −0.020 0.340 1.399*
(in 100) (0.026) (0.021) (0.143) (0.165) (0.051) (0.046) (0.701) (0.842)
Dis ance o nea es i al s a ion −0.131*** −0.128** −0.797* −0.794 −0.330*** −0.317** 0.981 0.812
(0.040) (0.058) (0.408) (0.491) (0.118) (0.129) (1.780) (2.359)
S a ion is loca ed on highway −0.029*** −0.029*** −0.026 −0.013 −0.067*** −0.067*** 0.276* 0.180
(0.005) (0.006) (0.033) (0.048) (0.012) (0.012) (0.163) (0.227)
Cons an 0.054*** 0.052*** 1.242*** 1.241*** 0.051*** 0.046*** −0.164 −0.082
(0.003) (0.003) (0.035) (0.029) (0.008) (0.008) (0.121) (0.135)
# o obse a ions 281 281 281 281 281 281 281 281
R20.349 0.367 0.063 0.064 0.119 0.146 0.009 0.011
No es: S anda d e o s a e epo ed in pa en heses. In OLS speci ica ions s anda d e o s a e based on a obus a iance es ima o . In WLS speci ica ions each obse a ion is
weigh ed by he in e se o he s anda d e o s o he dependen a iable es ima es. *** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.

678 J.-P. LOY, D. PENNERSTORFER, D. RROSHI, C. WEISS, B. YONTCHEVA
TABLE A.IX
ESTIMATION RESULTS FOR SPEED,PASS-THROUGH RATE AND ASYMMETRY OF PRICE TRANSMISSION BASED ON WEEKLY DATA
Speed Pass- h ough
a e Asymme y
in speed Asymme y
in h eshold
OLS WLS OLS WLS OLS WLS OLS WLS
[1] [2] [3] [4] [5] [6] [7] [8]
Sha e o shoppe s (𝜆) 0.080** 0.082* 0.364*** 0.342*** 0.135 0.126 −1.063** −1.326***
(0.039) (0.042) (0.094) (0.091) (0.120) (0.128) (0.411) (0.434)
# o s a ions wi hin 2 km 0.267*** 0.281*** 0.250 0.280 −0.413* −0.363 −2.322*** −2.731***
(in 100) (0.071) (0.082) (0.154) (0.180) (0.218) (0.248) (0.692) (0.898)
Dis ance o nea es i al S a ion −0.059 −0.050 0.132 0.139 −0.392 −0.387 −6.593** −5.686*
(in 100 km) (0.327) (0.324) (0.397) (0.508) (1.029) (0.985) (3.035) (3.022)
S a ion is loca ed on he Highway −0.022 −0.022 0.030 0.036 −0.038 −0.039 0.254 0.189
(0.025) (0.022) (0.039) (0.049) (0.094) (0.067) (0.238) (0.190)
Cons an 0.219*** 0.212*** 1.100*** 1.103*** 0.077 0.073 0.951*** 1.108***
(0.026) (0.027) (0.066) (0.060) (0.078) (0.083) (0.267) (0.281)
# o obse a ions 224 224 281 281 224 224 224 224
R20.067 0.071 0.051 0.053 0.030 0.023 0.051 0.064
No es: S anda d e o s a e epo ed in pa en heses. In OLS speci ica ions s anda d e o s a e based on a obus a iance es ima o . In WLS speci ica ions each obse a ion is
weigh ed by he in e se o he s anda d e o s o he dependen a iable es ima es. *** signi ican a 1%, ** signi ican a 5%, * signi ican a 10% le el.
© 2022 The Au ho s. The Jou nal o Indus ial Economics published by The Edi o ial Boa d o The Jou nal o Indus ial Eco-
nomics and John Wiley & Sons L d.
CONSUMER INFORMATION AND PRICE TRANSMISSION 679
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