Journal Articles

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

2005, Journal of Industrial Economics

Michael R. Baye, John Morgan, Patrick Scholten

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. 

Citation

Michael R. Baye, John Morgan, and Patrick Scholten, “Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site,” Journal of Industrial Economics, Vol. 52, No. 4 (December 2004), pp. 463-496. Winner of the Journal of Industrial Economics “Best Article Prize,” 2005.

Notations

Best Article Prize

Kelley School of Business

Faculty & Research