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The impact of shopbot use on prices and price dispersion: Evidence from online book retailing

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  • Tang, Zhulei
  • Smith, Michael D.
  • Montgomery, Alan

Abstract

Internet price search tools, notably shopbots, have reduced consumers' search costs for price and product characteristics. While a variety of analytic models predict that increased consumer search will lower price levels among competing retailers, there is no consensus in the literature as to how price dispersion will change with increased consumer search. Moreover, there are no papers that have empirically tested these predictions using direct observation of variation in shopbot use over time. This paper examines the impact of changes in shopbot use over time on pricing behavior in the Internet book market. We do this by combining price and clickstream data collected from August 1999 to July 2001 -- a period of rapid expansion in shopbot use. We find that a 1% increase in shopbot use is correlated with a $0.41 decrease in price levels and a 1.1% decrease in price dispersion.

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  • Tang, Zhulei & Smith, Michael D. & Montgomery, Alan, 2010. "The impact of shopbot use on prices and price dispersion: Evidence from online book retailing," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 579-590, November.
  • Handle: RePEc:eee:indorg:v:28:y:2010:i:6:p:579-590
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Loy, Jens-Peter & Weiss, Christoph R. & Glauben, Thomas, 2016. "Asymmetric cost pass-through? Empirical evidence on the role of market power, search and menu costs," Journal of Economic Behavior & Organization, Elsevier, vol. 123(C), pages 184-192.
    2. Avi Weiss & Joshua Sherman, 2014. "An Empirical Analysis of Search Costs and Price Dispersion," Working Papers 2014-06, Bar-Ilan University, Department of Economics.
    3. Klaus Gugler & Sven Heim & Mario Liebensteiner, 2016. "Non-Sequential Search, Competition and Price Dispersion in Retail Electricity," Department of Economics Working Papers wuwp225, Vienna University of Economics and Business, Department of Economics.
    4. repec:bla:ecinqu:v:55:y:2017:i:4:p:1898-1918 is not listed on IDEAS
    5. Dieter Pennerstorfer & Philipp Schmidt-Dengler & Nicolas Schutz & Christoph R. Weiss & Biliana Yontcheva, 2015. "Information and Price Dispersion. Theory and Evidence," WIFO Working Papers 502, WIFO.
    6. Anania, Giovanni & Nisticò, Rosanna, 2014. "Price dispersion and seller heterogeneity in retail food markets," Food Policy, Elsevier, vol. 44(C), pages 190-201.
    7. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9182-0 is not listed on IDEAS

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