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Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site

Michael Baye, John Morgan and Patrick Scholten
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Patrick Scholten: Bentley College

No 2004-03, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: This paper examines 4 million daily price observations for over 1000 consumer electronics products on the price comparison site Shopper.com. We find little support for the notion that prices on the Internet are converging to the “law of one price.” In addition, observed levels of price dispersion vary systematically with the number of firms listing prices. The difference between the two lowest prices (the “gap”) averages 22 percent when two firms list prices, and falls to 3.5 percent in markets where 17 firms list prices. These empirical results are an implication of a general “clearinghouse” model of equilibrium price dispersion.

Keywords: Bertrand Competition; Internet; Law of One Price; Price dispersion (search for similar items in EconPapers)
JEL-codes: D4 D8 L13 M3 (search for similar items in EconPapers)
Date: 2004
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Published in Journal of Industrial Economics, 2004

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http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bep ... -morgan-scholten.pdf (application/pdf)

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Journal Article: PRICE DISPERSION IN THE SMALL AND IN THE LARGE: EVIDENCE FROM AN INTERNET PRICE COMPARISON SITE (2004) Downloads
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