The Nature of Sales in Online Markets: Asymmetric Consumer Information or Benefits to Bulk Shopping?

30 Pages Posted: 31 May 2007

See all articles by Jihui Chen

Jihui Chen

Illinois State University

Jeffrey A. Livingston

Bentley University - Department of Economics

Patrick A. Scholten

Bentley University - Department of Economics

Date Written: July 2006

Abstract

Price dispersion - firms charging different prices for the same product - is widely observed in both online and traditional offline markets. While most price dispersion is explained by stylized clearinghouse models such as Varian (1980), these models do not explain why prices in offline markets are lower on weekends than during the work week, and before Christmas than after Christmas. We argue that price dispersion online is fully explained by clearinghouse models. First, because search and travel costs are lower online, these anomalous pricing patterns disappear. Second, prices charged by firms, price dispersion, the number of firms posting prices, and the minimum price in the online markets for several products vary in ways that are all consistent with the predictions of clearinghouse models.

Keywords: Price Dispersion, Price Competition, Internet, Information

JEL Classification: L100, L130, L150

Suggested Citation

Chen, Jihui and Livingston, Jeffrey A. and Scholten, Patrick A., The Nature of Sales in Online Markets: Asymmetric Consumer Information or Benefits to Bulk Shopping? (July 2006). Available at SSRN: https://ssrn.com/abstract=953553 or http://dx.doi.org/10.2139/ssrn.953553

Jihui Chen

Illinois State University ( email )

Campus Box 4200
Economics Department
Normal, IL 61790-4200
United States

HOME PAGE: http://https://about.illinoisstate.edu/jchen4/pages/default.aspx

Jeffrey A. Livingston

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States
781-891-2538 (Phone)
781-891-2896 (Fax)

HOME PAGE: http://works.bepress.com/jeffrey_livingston/

Patrick A. Scholten (Contact Author)

Bentley University - Department of Economics ( email )

175 Forest Street
Waltham, MA 02452-4705
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
98
Abstract Views
881
rank
286,919
PlumX Metrics