Informationally Imperfect Consumer Markets: Empirical Findings and Policy Implications

A local consumer market is informationally imperfect and welfare‐reducing to the extent that it is characterized by extensive price dispersion unexplained by utility‐conferring properties of the product. This article reports a study to ascertain the extent of informational imperfections for 17 representative products in Syracuse, New York. Except for food, most products exhibited extensive and welfare‐reducing price dispersion. The article also reports on a pilot investigation of consumers' perceptions, finding them to be mostly inaccurate (except for food) and typically underestimated. The study findings suggest that consumers are both victims of and contributors to informationally imperfect markets. The paper concludes with a discussion of policy implications.