The Heterogeneous Effects of Entry on Prices

Abstract We study the effect of entry on the price distribution in the German retail gasoline market. Exploiting several hundred entries over five years in an event study design, we find that entry causes a persistent first-order stochastic shift in the price distribution for at least three years after entry. Prices at the top of the distribution change moderately or not at all, but prices at the left tail decrease by up to 13% (9%) of stations’ gross margins after entry within a 1 km (2 km) radius. The value of information (VOI) increases by 29% (15%) in 1 km (2 km) markets, suggesting larger savings for consumers with easy access to information.