The Nature of Sales in Online Markets: Asymmetric Consumer Information or Benefits to Bulk Shopping?
30 Pages Posted: 31 May 2007
Date Written: July 2006
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: Suggested Citation