Title: Homogenous goods markets: an empirical study of price dispersion on the internet

Authors: Thierry Warin; Daniel Leiter

Addresses: Department of Mathematics and Industrial Engineering, École Polytechnique of Montréal, C.P. 6079, Succ. Centre-ville, Montréal (Québec) H3C 3A7, Canada ' Department of Economics, Alumnus, Middlebury College, Middlebury, VT 05753, USA

Abstract: This paper presents the results of an empirical study of price dispersion in homogenous goods markets. Modern economic theory suggests that markets will inevitably have information asymmetries resulting in equilibriums with price dispersion even when goods are perfectly homogenous. Earlier studies have tried to explain price dispersion in online markets using variables not related to information: seller characteristics, market competitiveness and time of entry. Our study enhances the previous literature by focusing exclusively on information. In this paper, we employ both cross-sectional and time series data gathered directly from Pricegrabber.com, one of the internet's most popular and comprehensive online shopping/price-comparison sites. We show that, unsurprisingly, price dispersion exists in online markets for the same reason it exists in traditional retail markets: 'noisy monopolists' that create information asymmetries in their quest for monopolistic profits.

Keywords: e-commerce; electronic commerce; world wide web; internet marketing; price dispersion; signalling; search costs; gatekeepers; homogenous goods; online markets; information asymmetries; equilibriums; virtual markets; web based markets; seller characteristics; market competitiveness; time of entry; cross-sectional data; time series data; Pricegrabber; online shopping; price-comparison websites; traditional markets; retail markets; monopolists; monopolistic profits; economics; business research.

DOI: 10.1504/IJEBR.2012.048776

International Journal of Economics and Business Research, 2012 Vol.4 No.5, pp.514 - 529

Available online: 23 Aug 2012

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