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Does price dispersion increase with quality? Evidence from the online diamond market

Author

Listed:
  • François-Charles Wolff

    (LEMNA - Laboratoire d'économie et de management de Nantes Atlantique - IEMN-IAE Nantes - Institut d'Économie et de Management de Nantes - Institut d'Administration des Entreprises - Nantes - UN - Université de Nantes)

Abstract

This article empirically investigates the relationship between price dispersion and price level. Searches seem more valuable for products of high quality, but buyers may have little incentive to search since such products are less frequently purchased. The extent of price dispersion is examined using a sample of around 160 000 diamonds offered for sale online. Estimates from a two-stage econometric strategy show that price dispersion increases significantly with quality. An explanation is that buyers of high-quality gemstones pay little attention to the price of these diamonds and even more so if they perceive high prices as signals of quality and rarity of the diamonds they intend to purchase.

Suggested Citation

  • François-Charles Wolff, 2015. "Does price dispersion increase with quality? Evidence from the online diamond market," Post-Print hal-03782749, HAL.
    • Handle: RePEc:hal:journl:hal-03782749
    DOI: 10.1080/00036846.2015.1061645
    as

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