Prices and Price Dispersion on the Web: Evidence from the Online Book Industry

44 Pages Posted: 5 May 2001 Last revised: 21 Oct 2010

See all articles by Karen Clay

Karen Clay

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management; National Bureau of Economic Research (NBER)

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Eric Wolff

affiliation not provided to SSRN

Date Written: May 2001

Abstract

Using data collected between August 1999 and January 2000 covering 399 books, including New York Times bestsellers, computer bestsellers, and random books, we examine pricing by thirty-two online bookstores. One common prediction is that the reduction in search costs on the Internet relative to the physical channel would cause both price and price dispersion to fall. Over the sample period, we find no change in either price or price dispersion. Another prediction of the search literature is that the prices and price dispersion of advertised items or items that are purchased repeatedly will be lower than for unadvertised or infrequently purchased items. Prices across categories of books appear to conform to this prediction, with New York Times bestsellers having the lowest prices as a fraction of the publisher's suggested price and random books having the highest prices. Interestingly, price dispersion does not conform with this prediction, apparently for reasons related to stores' decisions to carry particular books. One reason why we may not observe convergence in prices is because stores have succeeded in differentiating themselves even though they are selling a commodity product. We observe differentiation (or attempted differentiation) by a significant number of firms.

Suggested Citation

Clay, Karen B. and Krishnan, Ramayya and Wolff, Eric D., Prices and Price Dispersion on the Web: Evidence from the Online Book Industry (May 2001). NBER Working Paper No. w8271. Available at SSRN: https://ssrn.com/abstract=268880

Karen B. Clay (Contact Author)

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ramayya Krishnan

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Eric D. Wolff

affiliation not provided to SSRN

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