The increase of fuel price information on the market due to
the introduction of a new price transparency policy induces gas stations to
reduce their prices significantly.
Price transparency has become a widespread phenomenon.
Independent parties, have setset up websites that allow consumers to discover and
compare the prices of similar products across multiple options. How do firms
respond to such information? On the one hand, increasing the availability of price
information lowers consumers’ search costs, which in turn induces competing
firms to lower their prices. On the other hand, the transparency medium might serve
as a platform for rival firms to coordinate their prices and soften
competition. The goal of our research is motivated by such theoretical
We exploit the introduction of a mandatory price disclosure
policy in the Italian highways. A number of large electronic signs have been
installed along the road posting the fuel prices of nearby competing stations.
We use price data from these and other stations to measure the effect
of the introduction of the signs on fuel prices. We also use customer
transaction data to investigate the purchase behavior of consumers before and
after the introduction of price signs.
This is an example of a price sign installed following the transparency policy
We find that enhancing transparency by posting prices
decreases fuel prices by one euro cent per liter, which corresponds to 20% of
gas stations' margins. These findings are consistent with the theory on lower
search costs stemming from the installation of the signs. Despite the price
reduction, however, both the analysis on price dispersion and on customers'
transactions suggest that price uncertainty persists even after the policy is
This graph shows how the price difference between treated
stations (their prices have been posted on price signs) and control stations
(their prices have not been posted) changes after the introduction of the
Our study provides evidence of its potential effectiveness. The results from this research are of practical value for third parties, such as independent firms or policy makers, who might be considering implementing similar policies. They also speak more largely to the potential effectiveness of this policy in other markets, such as healthcare or education, where price uncertainty is high and the cost of introducing a price posting mechanism is relatively low.
- Questions for the Classroom
- Why the introduction of a transparency policy could
potentially increase prices?
- What is the difference between a station's own sign and
- Which stations are more affected by own signs and which are
more affected by cross-signs?
Federico Rossi and Pradeep K. Chintagunta (2016), “Price
Transparency and Retail Prices: Evidence from Fuel Price Signs in the Italian
Highway System.” Journal of Marketing
Research, Vol. 53, No. 3, pp. 407-423.
Federico Rossi is Assistant Professor of Marketing, Bocconi
University (e-mail: firstname.lastname@example.org).
Pradeep Chintagunta is Joseph T. and Bernice S.
Lewis Distinguished Service Professor of Marketing, Booth School of Business,
University of Chicago (e-mail: email@example.com).