Online Price Dispersion: An International Comparison

19 Pages Posted: 18 Jun 2010 Last revised: 6 Aug 2014

See all articles by David Bounie

David Bounie

Telecom ParisTech

B. Eang

Telecom ParisTech - Department of Economics and Social Sciences

Marvin A. Sirbu

Carnegie Mellon University - Engineering and Public Policy (EPP); Carnegie Mellon University - David A. Tepper School of Business

Patrick Waelbroeck

Telecom ParisTech

Date Written: April 19, 2012

Abstract

Online price dispersion has remained a puzzle for many years. In this article, we test the effects of a range of factors identified in the literature including vendor strategy, market structure, vendor heterogeneity and the time dimension. We use a dataset collected from the Amazon.com, Amazon.uk and the Amazon.fr marketplaces for books, CDs and DVDs from March to November 2006. First, using posted prices, we show that vendors make few modifications to their prices over time (once every 20 to 30 days), and those variations that they do make are relatively small (on average 15 cents). Secondly, we compare posted prices to transaction prices and we show that transaction prices do not necessarily correspond to the lowest posted price but rather centered around the median prices. Thirdly, we show that online price dispersion increases with the number of sellers mainly because new sellers price their product significantly lower that the current median price. Fourth, we show that there is a significant reputation premium of about 10 to 15%. A well established seller can charge a price 10 to 20% higher than the average seller. Our estimation results support the idea that price dispersion is sensitive to the maturity of the market. Consistent with our finding that price dispersion increases with the number of sellers, less mature markets, such as France with fewer sellers, exhibit lower price dispersion. Similarly, we find that large sellers account for a greater proportion of transactions in France than in the U.S. Lastly, we find that public policy can affect price dispersion: a French law limiting discounting on new books results in lower price dispersion in the French book market relative to book markets in the US and UK and relative to the French market for other goods.

Keywords: electronic commerce, price dispersion, reputation

JEL Classification: L1, C1, Z1

Suggested Citation

Bounie, David and Eang, B. and Sirbu, Marvin A. and Waelbroeck, Patrick, Online Price Dispersion: An International Comparison (April 19, 2012). Available at SSRN: https://ssrn.com/abstract=1625847 or http://dx.doi.org/10.2139/ssrn.1625847

David Bounie

Telecom ParisTech ( email )

46 rue Barrault
F-75634 Paris, Cedex 13
France

B. Eang

Telecom ParisTech - Department of Economics and Social Sciences

Paris Cedex 13, F-75634

Marvin A. Sirbu

Carnegie Mellon University - Engineering and Public Policy (EPP) ( email )

Pittsburgh, PA 15213
United States

Carnegie Mellon University - David A. Tepper School of Business ( email )

5000 Forbes Avenue
Pittsburgh, PA 15213-3890
United States

Patrick Waelbroeck (Contact Author)

Telecom ParisTech ( email )

46 rue Barrault
F-75634 Paris, Cedex 13
France

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