Abstract
This paper examines how consumer price knowledge affects shopping behavior and the prices consumers pay in grocery markets. We combine survey-based price recall data from over 2000 Norwegian households — yielding over 70000 price recalls across two grocery chains and 24 products—with 18 months of of linked individual-level transaction histories. Better-informed consumers—those who recall prices more accurately—pay lower prices by timing purchases to coincide with sales. A 10 percentage point increase in price knowledge (approximately the interquartile range) is associated with a 13 percentage point reduction in prices paid. Our results provide direct support for the central mechanism in Varian’s (1980) model of sales: that informed consumers pay lower prices by exploiting temporary discounts. We also find that consumers who are more active in seeking information about prices have higher price knowledge. Taken together, and with the caveat that we are only considering consumer responses here, our results suggest that policies or tools that help consumers learn about prices may be effective in enhancing competition. Our findings also speak to a marketing literature that seeks to measure and explain consumer price knowledge. By linking survey data to actual shopping behavior, we contribute to this literature by demonstrating that shopping behavior and attitudes are stronger predictors of price knowledge than demographic characteristics.