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Does price dispersion increase with quality? Evidence from the online diamond market

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  • Fran çois-Charles Wolff

Abstract

This article empirically investigates the relationship between price dispersion and price level. Searches seem more valuable for products of high quality, but buyers may have little incentive to search since such products are less frequently purchased. The extent of price dispersion is examined using a sample of around 160 000 diamonds offered for sale online. Estimates from a two-stage econometric strategy show that price dispersion increases significantly with quality. An explanation is that buyers of high-quality gemstones pay little attention to the price of these diamonds and even more so if they perceive high prices as signals of quality and rarity of the diamonds they intend to purchase.

Suggested Citation

  • Fran çois-Charles Wolff, 2015. "Does price dispersion increase with quality? Evidence from the online diamond market," Applied Economics, Taylor & Francis Journals, vol. 47(55), pages 5996-6009, November.
  • Handle: RePEc:taf:applec:v:47:y:2015:i:55:p:5996-6009
    DOI: 10.1080/00036846.2015.1061645
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    References listed on IDEAS

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    10. 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.
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    1. repec:spr:annopr:v:244:y:2016:i:2:d:10.1007_s10479-016-2160-1 is not listed on IDEAS
    2. Bonanno, Alessandro & Bimbo, Francesco & Costanigro, Marco & VIscecchia, Rosaria, 2018. "Do Geographic Indication Labels Pay off? Estimating GI’s implicit Price Dispersion in the Italian EVOO Market," 2018 Annual Meeting, August 5-7, Washington, D.C. 274203, Agricultural and Applied Economics Association.

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