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Search and Price Dispersion in Online Grocery markets

Listed author(s):
  • Timothy Richards

    ()

    (Arizona State University)

  • Stephen Hamilton

    ()

    (Department of Economics, California Polytechnic State University)

  • William Allender

    ()

    (McMaster University)

Prices for similar products often differ between retail outlets, leading consumers to actively search for products that meet their needs at the lowest possible price. Prices differ among retailers, and search intensity differs among consumers because search is a costly activity and consumers differ in their costs of search. How variety and the multiproduct nature of retailing affect search costs, search intensity, and the dispersion of prices, however, is not well understood. In this paper, we use online grocery pricing data form four retailers in the UK to estimate search costs and equilibrium price dispersions. When consumers search for singe products, we find that variety reduces the cost of search and induces consumers to search less, which increases the pricing power of online retailers. However, when consumers search for multiple products, search costs still fall in variety, but consumers search more intensively across stores, potentially increasing the competitiveness of online retail markets.

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File URL: https://www.cob.calpoly.edu/undergrad/wp-content/uploads/sites/3/2015/09/paper1504.pdf
File Function: First version, 2015
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Paper provided by California Polytechnic State University, Department of Economics in its series Working Papers with number 1504.

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Length: 43 pages
Date of creation: 2015
Handle: RePEc:cpl:wpaper:1504
Contact details of provider: Web page: http://www.cob.calpoly.edu/academic/economics/

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