When information is limited or costly, agents are unable to engage in optimal
arbitrage. Excess price dispersion across markets can arise, and goods may not be
allocated efficiently. In this setting, information technologies may improve market
performance and increase welfare. Between 1997 and 2001, mobile phone service
was introduced throughout Kerala, a state in India with a large fishing industry.
Using microlevel survey data, we show that the adoption of mobile phones by
fishermen and wholesalers was associated with a dramatic reduction in price
dispersion, the complete elimination of waste, and near-perfect adherence to the
Law of One Price. Both consumer and producer welfare increased.
When information is limited or costly, agents are unable to engage in optimal
arbitrage. Excess price dispersion across markets can arise, and goods may not be
allocated efficiently. In this setting, information technologies may improve market
performance and increase welfare. Between 1997 and 2001, mobile phone service
was introduced throughout Kerala, a state in India with a large fishing industry.
Using microlevel survey data, we show that the adoption of mobile phones by
fishermen and wholesalers was associated with a dramatic reduction in price
dispersion, the complete elimination of waste, and near-perfect adherence to the
Law of One Price. Both consumer and producer welfare increased.
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