High search costs make demand less elastic (lower prices attract fewer customers because not as many consumers can "find" lower prices) and this leads to higher prices in markets like gasoline. Products like SmartFuel (review) are designed to allow customers to search more cheaply. As products like SmartFuel bring search costs down, the market will become more competitive, and gas prices will fall.
DISCLAIMER: The guy in the video, George Sibble, is a former student, and I have a financial interest in his company.
Thanks for the post Luke!
ReplyDeleteThis looks like a great product. The only question I have is how it will prompt gas stations that are located on less traveled routes to lower their prices? Are we assuming that they will just go out of business if those routes become the most popular due to the low cost of gas?
ReplyDeleteAlso, can we forecast what prices might increase if those routes become more traveled? For example, will (should?) certain fast food locations charge more as the number of drivers increase? For example, if McDonald's is the most appetizing type of food relative to other competitors (i.e. Popeye's) on a given route, and that route becomes more traveled, will that prompt McDonald's to increase their prices relative to their competition? Are ancillary cost increases even relevant?