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Homogenous goods markets: an empirical study of price dispersion on the internet

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  • Thierry Warin
  • Daniel Leiter

Abstract

This paper presents the results of an empirical study of price dispersion in homogenous goods markets. Modern economic theory suggests that markets will inevitably have information asymmetries resulting in equilibriums with price dispersion even when goods are perfectly homogenous. Earlier studies have tried to explain price dispersion in online markets using variables not related to information: seller characteristics, market competitiveness and time of entry. Our study enhances the previous literature by focusing exclusively on information. In this paper, we employ both cross-sectional and time series data gathered directly from Pricegrabber.com, one of the internet's most popular and comprehensive online shopping/price-comparison sites. We show that, unsurprisingly, price dispersion exists in online markets for the same reason it exists in traditional retail markets: 'noisy monopolists' that create information asymmetries in their quest for monopolistic profits.

Suggested Citation

  • Thierry Warin & Daniel Leiter, 2012. "Homogenous goods markets: an empirical study of price dispersion on the internet," International Journal of Economics and Business Research, Inderscience Enterprises Ltd, vol. 4(5), pages 514-529.
  • Handle: RePEc:ids:ijecbr:v:4:y:2012:i:5:p:514-529
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    Cited by:

    1. Saralees Nadarajah & Xiao Jiang & Jeffrey Chu, 2017. "Comparisons of smallest order statistics from Pareto distributions with different scale and shape parameters," Annals of Operations Research, Springer, vol. 254(1), pages 191-209, July.
    2. Andrés Martínez, María-Encarnación & Alfaro Navarro, José-Luis & Trinquecoste, Jean-François, 2017. "The effect of destination type and travel period on the behavior of the price of airline tickets," Research in Transportation Economics, Elsevier, vol. 62(C), pages 37-43.

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