Flexible Fuel Vehicles, Less Flexible Minded Consumers: Price Information Experiments at the Pump

Abstract

Among Brazil's gasoline-ethanol vehicle users, it is common to observe the purchase of the fuel that yields the less miles per dollar of spending. In a large-scale set of experiments with 10,400 subjects, I inform energy consumers at the pump of the effective price difference across fuels. The largest treatment effect finds one-tenth of consumers, who absent the intervention would have chosen expensive gasoline, instead choosing cheaper ethanol. This shift is small compared with the higher likelihood that the cheaper fuel is chosen among college-educated relative to less schooled subjects. I estimate the consumer welfare gain from providing accessible price comparisons to be equivalent to a 1 to 3% general reduction in fuel prices, depending on the relative price point.

Keywords: Product differentiation, limited information, limited attention, price comparisons, information disclosure, gasoline, alternative fuels, biofuels, flexible fuel vehicles, discrete-choice models

JEL Classification: D12, D83, L62, L71, M38, Q21, Q42, Q48