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An Empirical Study of Price Dispersion in Homogenous Goods Markets

  • Thierry Warin

    ()

  • Daniel B. Leiter

This paper presents the results of an empirical study of price dispersion in homogeneous goods markets. Modern economic theory suggests that inevitable asymmetries of information in markets lead to an equilibrium in which price dispersion is present even when goods are perfectly homogenous. In this paper we present an empirical analysis in which we employ both cross-sectional and time-series data gathered directly from Pricegrabber.com, one of the most popular and comprehensive online shopping/price-comparison sites on the Internet. In particular our analysis focuses on (i) the effect that the number of firms offering a good has on price dispersion, (ii) the informational value to the consumer of using the Pricegrabber website, and (iii) the persistency of price dispersion over time.

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File URL: http://www.middlebury.edu/services/econ/repec/mdl/ancoec/0710.pdf
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Paper provided by Middlebury College, Department of Economics in its series Middlebury College Working Paper Series with number 0710.

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Length: 44 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:mdl:mdlpap:0710
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  1. Morgan, John & Orzen, Henrik & Sefton, Martin, 2006. "An experimental study of price dispersion," Games and Economic Behavior, Elsevier, vol. 54(1), pages 134-158, January.
  2. Salop, Steven, 1977. "The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 393-406, October.
  3. Narasimhan, Chakravarthi, 1988. "Competitive Promotional Strategies," The Journal of Business, University of Chicago Press, vol. 61(4), pages 427-49, October.
  4. Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
  5. 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.
  6. Rosenthal, Robert W, 1980. "A Model in Which an Increase in the Number of Sellers Leads to a Higher Price," Econometrica, Econometric Society, vol. 48(6), pages 1575-79, September.
  7. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
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