Price Transparency, Media, and Informative Advertising

Abstract

We study the effects of a price transparency regulation in Israeli supermarkets. Using price data collected before and after the regulation and a difference-in-difference research design, we show that price levels and price dispersion declined significantly after the regulation. Chains also began setting identical prices in all stores. We use Robert and Stahl (1993) to interpret our findings, showing that low-priced chains extensively used price advertising after prices became transparent. These chains referenced price-comparison surveys conducted by the media to induce credibility for ads. Our findings highlight the importance of price transparency and the procompetitive role of informative advertising. (JEL D22, D83, L11, L81, L82, L88, M37)