Price Dispersion in Online Markets: The Case of College Textbooks
In his seminal work, Stigler (1961) argued that price dispersion for a homogeneous product is an indication of consumer ignorance. Ready access to price information on the Internet has led to many claims that ignorance will not persist in online markets, and that online prices for a homogenous good will converge to the competitive price. However, a growing body of empirical research provides strong evidence of persistent price dispersion in online markets. In this paper we present a simple model which illustrates how price dispersion can exist in equilibrium even when all consumers are perfectly informed about the prices charged by all firms. The equilibrium relies on the fact that although prices are common knowledge, information about the availability of the product at any particular firm can only be obtained at a positive cost. We test the model using data from the online market for college textbooks. The empirical results indicate that price dispersion exists in the online market for college textbooks, and support the predictions of the theoretical model that in a equilibrium with price dispersion some firms adopt a high-price, high-availability strategy while others adopt a low-price, low-availability strategy.
|Date of creation:||2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: (302) 831-2565
Fax: (302) 831-6968
Web page: http://www.lerner.udel.edu/departments/economics/department-economics/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Michael R. Baye & John Morgan & Patrick Scholten, 2006.
"Persistent Price Dispersion in Online Markets,"
2006-12, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Erik Brynjolfsson & Michael D. Smith, 2000.
"Frictionless Commerce? A Comparison of Internet and Conventional Retailers,"
INFORMS, vol. 46(4), pages 563-585, April.
- Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
- Karen Clay & Ramayya Krishnan & Eric Wolff, 2001.
"Prices and Price Dispersion on the Web: Evidence from the Online Book Industry,"
NBER Working Papers
8271, National Bureau of Economic Research, Inc.
- Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Chapters, in: E-commerce, pages 521-539 National Bureau of Economic Research, Inc.
- Clay, Karen & Krishnan, Ramayya & Wolff, Eric, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 521-39, December.
- Baylis, Kathy & Perloff, Jeffrey M., 2001.
"Price Dispersion on the Internet: Good Firms and Bad Firms,"
Institute for Research on Labor and Employment, Working Paper Series
qt2t0770rn, Institute of Industrial Relations, UC Berkeley.
- Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer, vol. 21(3), pages 305-324, November.
- James D. Dana, 2000.
"Competition in Price and Availability when Availability is Unobservable,"
Econometric Society World Congress 2000 Contributed Papers
1450, Econometric Society.
- Dana, James D, Jr, 2001. "Competition in Price and Availability When Availability is Unobservable," RAND Journal of Economics, The RAND Corporation, vol. 32(3), pages 497-513, Autumn.
- Michael R. Baye & John Morgan, 2001. "Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets," American Economic Review, American Economic Association, vol. 91(3), pages 454-474, June.
- Glenn Ellison & Sara Fisher Ellison, 2004.
"Search, Obfuscation, and Price Elasticities on the Internet,"
NBER Working Papers
10570, National Bureau of Economic Research, Inc.
- Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03.
- Michael R. Baye & John Morgan & Patrick Scholten, 2004.
"Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site,"
2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
- Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
- Arnold, Michael A, 2000. "Costly Search, Capacity Constraints, and Bertrand Equilibrium Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 117-31, February.
- Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
- Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
- J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
- Yannis Bakos, 2001. "The Emerging Landscape for Retail E-Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 69-80, Winter.
- Oecd, 1998. "Electronic Commerce: Prices and Consumer Issues for Three Products: Books, Compact Discs and Software," OECD Digital Economy Papers 32, OECD Publishing.
When requesting a correction, please mention this item's handle: RePEc:dlw:wpaper:03-02. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Saul Hoffman)
If references are entirely missing, you can add them using this form.