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The impact of price adjustment costs on price dispersion in e-commerce

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  • Böheim, René
  • Hackl, Franz
  • Hölzl-Leitner, Michael

Abstract

We analyze price dispersion using panel data from a large price comparison site. We use past pricing behavior to instrument for potential endogeneity of firms to select into certain product markets. Our main result is that greater price adjustment costs result in greater price dispersion even in e-commerce markets where price adjustment cost are thought to be negligible. Although the impact of price adjustment costs on price dispersion became weaker over time, the causal effect of price adjustment costs on price dispersion is still present at the end of our observation period. Our results are robust to many alternative empirical specifications. We also control for a range of alternative explanations of price dispersion, such as search cost, service differentiation, obfuscation, vertical restraints, and market structure.

Suggested Citation

  • Böheim, René & Hackl, Franz & Hölzl-Leitner, Michael, 2021. "The impact of price adjustment costs on price dispersion in e-commerce," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    • Handle: RePEc:eee:indorg:v:77:y:2021:i:c:s0167718721000369
    DOI: 10.1016/j.ijindorg.2021.102743
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    2. Mauring, Eeva, 2022. "Search and Price Discrimination Online," CEPR Discussion Papers 15729, C.E.P.R. Discussion Papers.
    3. Franz Hackl & Michael Hölzl‐Leitner & Rudolf Winter‐Ebmer & Christine Zulehner, 2021. "Successful retailer strategies in price comparison platforms," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(5), pages 1284-1305, July.
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    More about this item

    Keywords

    Price dispersion; Price adjustment costs; Menu costs; E-commerce;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms

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