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Online Market Resilience to Economic Shocks: Evidence Based on Price Dispersion from the COVID-19 Outbreak in China

Author

Listed:
  • Taoxiong Liu

    (Tsinghua University)

  • Huolan Cheng

    (Tsinghua University)

  • Jianping Liu

    (Zhong Ou AMC)

  • Zhen Sun

    (Tsinghua University)

Abstract

We examine the effect of COVID-19 epidemic and the subsequent stay-at-home order on market efficiency in China’s online markets. Through a comparison of price dispersion changes across online retail platforms around the lockdown date with the corresponding period in the 2019 lunar year—with the use of a unique and extensive online retail price dataset—we find a counterintuitive decrease in product price dispersion during the epidemic, which is contrary to conventional economic expectations during adverse events. Our study differentiates products by crisis-time demand elasticity—e.g., food versus clothing—and by online search intensity. This reveals that the lockdown and prolonged stay-at-home period facilitated online searches by consumers, which reduced information costs and enhanced market efficiency. The pandemic-induced decrease in price dispersion can be largely attributed to heightened online search activity: after we adjust for the intensity of search, the remaining pandemic effect on price dispersion becomes positive. China’s resilient online market acted as a protective buffer during the COVID-19 crisis. The transition from offline to online markets and increased search activities bolstered online market functionality and mitigated the epidemic’s repercussions.

Suggested Citation

  • Taoxiong Liu & Huolan Cheng & Jianping Liu & Zhen Sun, 2025. "Online Market Resilience to Economic Shocks: Evidence Based on Price Dispersion from the COVID-19 Outbreak in China," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 66(3), pages 397-413, March.
    • Handle: RePEc:kap:revind:v:66:y:2025:i:3:d:10.1007_s11151-024-09987-5
    DOI: 10.1007/s11151-024-09987-5
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    Keywords

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    JEL classification:

    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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