Advanced Search
MyIDEAS: Login to save this paper or follow this series

Information, Search, and Price Dispersion

Contents:

Author Info

  • Michael R. Baye

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • John Morgan

    (Haas School of Business and Department of Economics, University of California, Berkeley)

  • Patrick Scholten

    (Bentley College)

Abstract

We provide a unified treatment of alternative models of information acquisition/transmission that have been advanced to rationalize price dispersion in online and offline markets for homogeneous products. These different frameworks -- which include sequential search, fixed sample search, and clearinghouse models -- reveal that reductions in (or the elimination of) consumer search costs need not reduce (or eliminate) price dispersion. Our treatment highlights a "duality" between search-theoretic and clearinghouse models of dispersion, and shows how auction-theoretic tools may be used to simplify (and even generalize) existing theoretical results. We conclude with an overview of the burgeoning empirical literature. The empirical evidence suggests that price dispersion in both online and offline markets is sizeable, pervasive, and persistent and does not purely stem from subtle differences in firms' products or services.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2006-11-baye-morgan-scholten.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2006-11.

as in new window
Length:
Date of creation: Dec 2006
Date of revision:
Publication status: Forthcoming in the Handbook on Economics and Information Systems
Handle: RePEc:iuk:wpaper:2006-11

Contact details of provider:
Postal: 1309 East Tenth Street, Room 451, Bloomington, IN 47405-1701
Phone: 812-855-9219
Fax: 812-855-3354
Email:
Web page: http://www.bus.indiana.edu/bepp/
More information through EDIRC

Related research

Keywords:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, INFORMS, vol. 46(4), pages 563-585, April.
  2. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
  3. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, Econometric Society, vol. 77(2), pages 427-452, 03.
  4. Eric K. Clemons & Il-Horn Hann & Lorin M. Hitt, 2002. "Price Dispersion and Differentiation in Online Travel: An Empirical Investigation," Management Science, INFORMS, INFORMS, vol. 48(4), pages 534-549, April.
  5. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
  6. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
  7. Severin Borenstein & Nancy L. Rose, 1991. "Competition and Price Dispersion in the U.S. Airline Industry," NBER Working Papers 3785, National Bureau of Economic Research, Inc.
  8. Baye, M.R. & Kovenock, D., 1992. "How to Sell a Pickup Truck; "Beat-or-Pay" Advertisements as Facilitating Devices"," Purdue University Economics Working Papers 1032, Purdue University, Department of Economics.
  9. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," Yale School of Management Working Papers, Yale School of Management ysm290, Yale School of Management, revised 12 Sep 2008.
  10. Friberg, Richard & Ganslandt, Mattias & Sandström, Mikael, 2001. "Pricing Strategies in E-Commerce: Bricks vs. Clicks," Working Paper Series, Research Institute of Industrial Economics 559, Research Institute of Industrial Economics.
  11. Arbatskaya, Maria & Baye, Michael R., 2004. "Are prices 'sticky' online? Market structure effects and asymmetric responses to cost shocks in online mortgage markets," International Journal of Industrial Organization, Elsevier, vol. 22(10), pages 1443-1462, December.
  12. Ronald Johnson, 2002. "Search Costs, Lags and Prices at the Pump," Review of Industrial Organization, Springer, vol. 20(1), pages 33-50, February.
  13. E. Woodrow Eckard, 2004. "The "Law of One Price" in 1901," Economic Inquiry, Western Economic Association International, Western Economic Association International, vol. 42(1), pages 101-110, January.
  14. Mark J. Roberts & Dylan Supina, 1997. "Output Price and Markup Dispersion in Micro Data: The Roles of Producer Heterogeneity and Noise," NBER Working Papers 6075, National Bureau of Economic Research, Inc.
  15. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Chapters, in: E-commerce, pages 521-539 National Bureau of Economic Research, Inc.
  16. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  17. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Working Papers, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy 2004-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  18. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, INFORMS, vol. 43(12), pages 1676-1692, December.
  19. Dana, J.D., 1991. "Learning in an Equilibrium Search Model," Papers, Stanford - Institute for Thoretical Economics 37, Stanford - Institute for Thoretical Economics.
  20. Benabou, Roland & Gertner, Robert, 1993. "Search with Learning from Prices: Does Increased Inflationary Uncertainty Lead to Higher Markups?," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 60(1), pages 69-94, January.
  21. Brynjolfsson, Erik & Dick, Astrid Andrea & Smith, Michael D., 2004. "Search and Product Differentiation at an Internet Shopbot," Working papers 4441-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  22. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, Econometric Society, vol. 51(4), pages 955-69, July.
  23. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer, vol. 21(3), pages 305-324, November.
  24. Michael A. Arnold & Christine Saliba, 2003. "Price Dispersion in Online Markets: The Case of College Textbooks," Working Papers 03-02, University of Delaware, Department of Economics.
  25. Austan Goolsbee, 2001. "Competition in the Computer Industry: Online Versus Retail," NBER Chapters, in: E-commerce, pages 487-499 National Bureau of Economic Research, Inc.
  26. Saul Lach, 2002. "Existence and Persistence of Price Dispersion: an Empirical Analysis," NBER Working Papers 8737, National Bureau of Economic Research, Inc.
  27. Barron, John M. & Taylor, Beck A. & Umbeck, John R., 2004. "Number of sellers, average prices, and price dispersion," International Journal of Industrial Organization, Elsevier, vol. 22(8-9), pages 1041-1066, November.
  28. Axel, Bo, 1977. " Search Market Equilibrium," Scandinavian Journal of Economics, Wiley Blackwell, vol. 79(1), pages 20-40.
  29. Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
  30. Oecd, 1998. "Electronic Commerce: Prices and Consumer Issues for Three Products: Books, Compact Discs and Software," OECD Digital Economy Papers 32, OECD Publishing.
  31. Daughety, Andrew F, 1992. "A Model of Search and Shopping by Homogeneous Customers without Price Precommitment by Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 1(3), pages 455-73, Fall.
  32. Baye, Michael R. & Kovenock, Dan & de Vries, Casper G., 1992. "It takes two to tango: Equilibria in a model of sales," Games and Economic Behavior, Elsevier, vol. 4(4), pages 493-510, October.
  33. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2005. "Estimating Firm-Level Demand at a Price Comparison Site: Accounting for Shoppers and the Number of Competitors," Microeconomics, EconWPA 0504005, EconWPA.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:iuk:wpaper:2006-11. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Rick Harbaugh).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.