The Impact of Price Adjustment Costs on Price Dispersion in E-Commerce

45 Pages Posted: 21 Feb 2019

See all articles by René Böheim

René Böheim

Johannes Kepler University

Franz Hackl

Johannes Kepler University Linz - Department of Economics

Michael Hölzl-Leitner

Johannes Kepler University

Date Written: 2019

Abstract

We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity that might result from the selection of firms to certain product markets. We find that greater price adjustment costs result in greater price dispersion. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of the period. Our results are robust to many alternative empirical specifications. We also test a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure.

Keywords: price dispersion, price adjustment costs, menu costs, e-commerce

JEL Classification: D400, L110

Suggested Citation

Boheim, Rene and Hackl, Franz and Hölzl-Leitner, Michael, The Impact of Price Adjustment Costs on Price Dispersion in E-Commerce (2019). CESifo Working Paper No. 7510, Available at SSRN: https://ssrn.com/abstract=3338917 or http://dx.doi.org/10.2139/ssrn.3338917

Rene Boheim (Contact Author)

Johannes Kepler University ( email )

Linz
Austria

Franz Hackl

Johannes Kepler University Linz - Department of Economics ( email )

Altenbergerstrasse 69
A-4040 Linz, 4040
Austria

HOME PAGE: http://www.economics.uni-linz.ac.at/hackl

Michael Hölzl-Leitner

Johannes Kepler University ( email )

Linz
Austria

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