Abstract: Price dispersion refers to the phenomenon that the same good is sold at different prices at the same time in a given market. Price dispersion violates the "law of one price" and reveals the low efficiency of market running, however, price dispersion is a universal phenomenon. Can market competition reduces price dispersion in an industry (or product)? Few literatures have formally studied this topic in the Chinese market. Firstly, the effect mechanism, results and conditions of competition on price dispersion are demenstrated by mathematical model under the framework of consumer information search theory and firm spatial competition theory, respectively. Then, the data of price and relevant variables of all the car insurance firm for about 300 prefecture-level cities during 2005-2014 are collected, in consideration of the several advantages of Chinese insurance market data. Using the statistical description of related indicators and regression analysis in multiple dimensions, it is mainly found that that even eliminating the product heterogeneity, apparent price dispersion lies in car insurance market, and the mean and median of the coefficient of variation for the price is 0.472 and 0.445, respectively. Market competition can reduce price dispersion among firms in the car insurance market. The number of car insurance firm increases by ten (the market concentration ratio decrease by one standard deviation in the sample) can decrease the standard deviation of car insurance price by about 25 percent (5 percent-6 percent) of its sample's average level, as a whole. The results are robust to static and dynamic panel data econometric models, to several price dispersion indices, to the majority of indices measuring competition, and to several subgroup analysis. The methods of this paper can be referenced to study the relationship between market characteristics and price dispersion in other fields. The policy implication of this paper is that to improve the efficiency of market running, the policy makers should enhance competition among the supply side and reduce search costs of the demand side. Finally, this papers' limitations and further research directions are put forward from the aspects of the research hypothesis, sample characteristics and new topics.

Key words: market competition, price dispersion, information search, spatial competition, insurance