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

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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 reverse -- it 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 non-linear 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.