Price Distributions, Price Comparison Surveys, and Price Competition: A Comment on a Paper by Schmidbauer

Klaus Schmidbauer presented a paper entitled “On the Price Structure in Consumer Markets: Results of a Secondary Analysis of Price Comparisons of Consumer Durables”. The paper analysed price data on consumer durables collected by the German Institut für angewandte Verbraucherforschung in order to throw some light on two important issues in consumer policy. First, Schmidbauer considered the shape and form of the distributions of prices of given makes and models of consumer durables found in local markets. Inspection of these empirical distributions permitted the author to reach some conclusions about the usefulness of providing price comparison information on a public good basis. Secondly, the variety of different prices on offer in a local market (as measured by the coefficient of variation) was suggested as a measure of local price competition. Simple correlations were found between the number of prices quoted for a model and the range of those prices (positive); the average variability of prices between sellers and the price level in a given local market (negative); and the size of the local market and the price level (negative). Overall these results were taken as confirming the notion that increased price competition is reflected in an increased variation in price.