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Price Setting in Online Markets: Does IT Click?

Author

Listed:
  • Yuriy Gorodnichenko
  • Viacheslav Sheremirov
  • Oleksandr Talavera

Abstract

Using a unique dataset of daily US and UK price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors’ prices, and low costs of nominal price adjustment. We document that although online prices change more frequently than offline prices, they nevertheless exhibit relatively long spells of fixed prices. By many metrics, such as large size and low synchronization of price changes, considerable cross-sectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions, online prices are as imperfect as offline prices. Our findings suggest a need for more research on the sources of price rigidities and dispersion, as well as on the relative role of menu and search costs in online-pricing frictions.

Suggested Citation

  • Yuriy Gorodnichenko & Viacheslav Sheremirov & Oleksandr Talavera, 2018. "Price Setting in Online Markets: Does IT Click?," Journal of the European Economic Association, European Economic Association, vol. 16(6), pages 1764-1811.
    • Handle: RePEc:oup:jeurec:v:16:y:2018:i:6:p:1764-1811.
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Alberto Cavallo, 2017. "Are Online and Offline Prices Similar? Evidence from Large Multi-channel Retailers," American Economic Review, American Economic Association, vol. 107(1), pages 283-303, January.
    2. Christopher Cotton & Haresh Gurnani & Raphael Boleslavsky, 2015. "Demonstrations And Price Competition In New Product Release," Working Paper 1347, Economics Department, Queen's University.
    3. Liu, Yue, 2016. "Price dispersion across countries and the heterogeneous impacts of income differences," Economics Letters, Elsevier, vol. 140(C), pages 64-67.
    4. Yuriy Gorodnichenko & Oleksandr Talavera, 2017. "Price Setting in Online Markets: Basic Facts, International Comparisons, and Cross-Border Integration," American Economic Review, American Economic Association, vol. 107(1), pages 249-282, January.
    5. Nuno Clara, 2018. "Demand Elasticities, Nominal Rigidities and Asset Prices," 2018 Meeting Papers 790, Society for Economic Dynamics.
    6. Alberto Cavallo, 2018. "Scraped Data and Sticky Prices," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 105-119, March.
    7. Ronayne, David, 2015. "Price Comparison Websites," The Warwick Economics Research Paper Series (TWERPS) 1056, University of Warwick, Department of Economics.
    8. José Anson & Mauro Boffa, 2018. "Consumer Arbitrage in Cross-Border E-commerce," RSCAS Working Papers 2018/17, European University Institute.
    9. repec:kap:jincot:v:17:y:2017:i:4:d:10.1007_s10842-017-0246-3 is not listed on IDEAS
    10. repec:eee:jbrese:v:80:y:2017:i:c:p:63-72 is not listed on IDEAS
    11. repec:fip:fedreq:00045 is not listed on IDEAS
    12. S. Dupraz, 2017. "A Kinked-Demand Theory of Price Rigidity," Working papers 656, Banque de France.
    13. Sheremirov, Viacheslav, 2015. "Price dispersion and inflation: new facts and theoretical implications," Working Papers 15-10, Federal Reserve Bank of Boston.
    14. René Böheim & Franz Hackl & Michael Hölzl-Leitner, 2019. "The Impact of Price Adjustment Costs on Price Dispersion in E-Commerce," CESifo Working Paper Series 7510, CESifo Group Munich.
    15. Kline, Patrick & Petkova, Neviana & Williams, Heidi & Zidar, Owen, 2017. "Who Profits from Patents? Rent-Sharing at Innovative Firms," Institute for Research on Labor and Employment, Working Paper Series qt6mr8598q, Institute of Industrial Relations, UC Berkeley.
    16. Itai Ater & Oren Rigbi, 2018. "The Effects of Mandatory Disclosure of Supermarket Prices," CESifo Working Paper Series 6942, CESifo Group Munich.
    17. Alberto Cavallo & Roberto Rigobon, 2016. "The Billion Prices Project: Using Online Prices for Measurement and Research," Journal of Economic Perspectives, American Economic Association, vol. 30(2), pages 151-178, Spring.
    18. Ater, Itai & Rigbi, Oren, 2017. "The Effects of Mandatory Disclosure of Supermarket Prices," CEPR Discussion Papers 12381, C.E.P.R. Discussion Papers.
    19. Andrea Mantovani & Claudio Piga & Carlo Reggiani, 2019. "Much ado about nothing? Online platform price parity clauses and the EU Booking.com case," The School of Economics Discussion Paper Series 1909, Economics, The University of Manchester.
    20. Flavio Delbono & Gemma Dipoppa & Luca Lambertini & Carlo Reggiani, 2017. "A Single Espresso, Please! Rationalizing Espresso Price Dispersion Across Italian Cities," Journal of Industry, Competition and Trade, Springer, vol. 17(4), pages 465-478, December.
    21. Gesche, Tobias, 2018. "Reference Price Shifts and Customer Antagonism: Evidence from Reviews for Online Auctions," Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181650, Verein für Socialpolitik / German Economic Association.

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    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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