Wednesday, May 21, 2008

Markets and Information

A basic premise in economics is that markets are more efficient when both parties have similar information. This allows competition to work and for the market to reach an efficient match of quantity supplied and quantity demanded. Now, rightly or wrongly, many people assume that the supplier or seller is generally presumed to have superior knowledge. One can argue whether or not this is a valid assumption, but I'm going to go with it for purposes of this post.

If the supplier does have superior information, then a tool that provides the demander or consumer with more information about the market should make for better competition a more efficient market. Such a tool can be seen at this site.

The site collects gasoline price information from volunteers around the nation and provides recent gasoline prices to help consumers determine where the "best" price might be. The most interesting portion is "below the fold" in the left hand column of the site. It's the gasoline temperature map and compares average gasoline prices, by county, across the nation. You can zero in and even find information by city or zip code. I've browsed around and the information is by no means complete. Outside of larger metropolitan areas, the information seems spotty at best, and totally absent in many cases. Nevertheless, it might be an interesting tool to demonstrate with your economics classes when discussing the value of information in the local market. It could also be used when teaching comparative shopping in a personal finance or consumer education course.

I've got a family road trip coming up this summer. I might even put it to the test.

I'd be interested in your thoughts about this as a teaching tool, and if you're a contributor to the site.

5 comments:

Mike Fladlien said...

i don't believe that gas buddy is worth the time and effort...i believe that gas is sold in a perfectly competitive market...there can't be asymmetrical information....

Tim Schilling said...

Given your comment, how do you explain price differentials (10 cents plus) within a few miles that last for days?

And do you think both consumers and producers have full access to all the same information?

Mike Fladlien said...

an easy cop out is to say there's asymetrical information...but the reason why there's a cost difference between two gas stations 10 miles apart is that people weigh the costs of benefits of each decision...in other words, is it worth it for me to drive 20 miles round trip to save 10 cents on a gallon? i know few people for whom that decision would be rational...i welcome your reply....by the way, did you see where Obama will get rid of the penny as long as Lincoln's face appears on another coin?

Tim Schilling said...

You are correct about the choice not to drive 20 miles (more than I proposed) to save 10 cents...if.

Your vehicle gets 20 miles to the gallon the trip, and it costs you one gallon to make the trip and your tank is a 38.5 gallon tank. (Gas is about 3.85 here.) (This also ignores wear and tear, etc.)

The same would hold if you were driving a vehicle that got 40 miles to the gallon and your tank held 19.25 gallons.

But suppose you can acquire information about a station five miles away, and it's on your way to work, and you have an 18 gallon tank. The new information is something you didn't have before (asymetry?) and can help you make a better decision. And that is all I'm proposing...more information makes for better decisions because asymetries exist.

As you pointed out, for some it is a rational decision. (But as I pointed out, only if they have the information.)

Mike Fladlien said...

i agree with you on your last point...can i say that there are many buyers and sellers in the market so that one person cannot influence the price...it's possible for one buyer to benefit from a positional externality, but not the market...by the way, i read one of your comments on "consider the evidence" that was brilliant....