Are Internet Prices Sticky?

46 Pages Posted: 30 Jun 2006

See all articles by Patrick Lunnemann

Patrick Lunnemann

Banque Central du Luxembourg

Ladislav Wintr

Clark University

Date Written: June 2006

Abstract

This paper studies the behaviour of Internet prices. It compares price rigidities on the Internet and in traditional brick-and-mortar stores and provides a cross-country perspective. The data set covers a broad range of items typically sold over the Internet.It includes more than 5 million daily price quotes downloaded from price comparison web sites in France, Germany, Italy, the UK and the US. The following results emerge from our analysis. First, and contrary to the recent findings for common CPI data, Internet prices in the EU countries do not change less often than online prices in the US. Second, prices on the Internet are not necessarily more flexible than prices in traditional brick-and-mortar stores. Third, there is substantial heterogeneity in the frequency of price change across shop types and product categories. Fourth, the average price change on the Internet is relatively large, but smaller than the respective values reported for CPI data. Finally, panel logit estimates suggest that the likelihood of observing a price change is a function of both state- and time-dependent factors.

Keywords: Price stickiness, Internet, price setting behaviour

JEL Classification: E31, L11

Suggested Citation

Lunnemann, Patrick and Wintr, Ladislav, Are Internet Prices Sticky? (June 2006). ECB Working Paper No. 645, Available at SSRN: https://ssrn.com/abstract=907314

Patrick Lunnemann (Contact Author)

Banque Central du Luxembourg ( email )

2, boulevard Royal
L-2983 Luxembourg
Luxembourg

Ladislav Wintr

Clark University ( email )

950 Main Street
Worcester, MA 01610
United States

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