Informative Mobile Application, Search Cost, and Spatial Price Competition in the Korean Retail Gasoline Market

Abstract

In May 23, 2010, Korea National Oil Corporation distributed a mobile application so called “Opinet” to stabilize the gasoline price and intensify the competition among the gasoline stations. Using the spatial econometric method, this paper empirically evaluates the effects of informative mobile apps on the spatial price competition and price dispersion in the Korean retail gasoline market. We find the various interesting results. First, the increased transparency makes the market less competitive when the producers have more information rather than the consumers. Second, when the ratio of informed consumers crosses the threshold level, the market becomes more competitive, because the informed consumers make the market punishments weak. Third, there is the inverted-U relationship between the ratio of informed consumer and the price dispersion, which is consistent with Stahl’s view (AER, 1989). Therefore, this paper concludes that the penetration rate of informative mobile apps intensifies the price competition among gasoline stations and reduces the price dispersion of gasoline.