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

Morgan, John; Baye, Michael R.; Scholten, Patrick A.

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

34 Pages Posted: 21 Dec 2004

See all articles by John Morgan

John Morgan

University of California, Berkeley - Economic Analysis & Policy Group

Michael R. Baye

Indiana University - Kelley School of Business - Department of Business Economics & Public Policy

Patrick A. Scholten

Bentley University - Department of Economics

Abstract

This paper examines four million daily price observations for more than 1,000 consumer electronics products on the price comparison site http://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 23 per cent when two firms list prices, and falls to 3.5 per cent in markets where 17 firms list prices. These empirical results are an implication of a general 'clearinghouse' model of equilibrium price dispersion.

Suggested Citation: Suggested Citation

Morgan, John and Baye, Michael Roy and Scholten, Patrick A., Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site. Available at SSRN: https://ssrn.com/abstract=629957