Sticky information and price controls: Evidence from a natural experiment

• Products with price caps are sold more than similar products with uncapped prices. • Price dispersion is smaller for regulated than unregulated products. • Prices of regulated products last longer than the prices of unregulated products. • Shoppers are less attentive to information that changes infrequently. • Absolute and relative price recall errors are larger for regulated products. We test the predictions of the sticky information model using a survey dataset by comparing shoppers’ accuracy in recalling the prices of regulated and comparable unregulated products. Because regulated product prices are capped, they are sold more than comparable unregulated products, while their prices change less frequently and vary less across stores and between brands, than the prices of comparable unregulated products. Therefore, shoppers would be expected to recall the regulated product prices more accurately. However, we find that shoppers are better at recalling the prices of unregulated products, in line with the sticky information model which predicts that shoppers will be more attentive to prices that change more frequently.