Sticky information and price controls: Evidence from a natural experiment

TL;DR

This study tests the sticky information model by comparing shopper recall accuracy for regulated and unregulated product prices, finding that shoppers recall unregulated prices more accurately despite expectations.

Contribution

It provides empirical evidence supporting the sticky information model by analyzing real-world data on price recall for regulated versus unregulated products.

Findings

Shoppers recall unregulated product prices more accurately.

Prices of regulated products are less frequently changed and vary less.

The results align with the sticky information model's predictions.

Abstract

We test the predictions of the sticky information model using a survey dataset by comparing shoppers accuracy in recalling the prices of regulated and comparable unregulated products. Because regulated product prices are capped, they are sold more than comparable unregulated products, while their prices change less frequently and vary less across stores and between brands, than the prices of comparable unregulated products. Therefore, shoppers would be expected to recall the regulated product prices more accurately. However, we find that shoppers are better at recalling the prices of unregulated products, in line with the sticky information model which predicts that shoppers will be more attentive to prices that change more frequently.