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Journal Article

Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site

Michael R. Baye, John Morgan and Patrick Scholten
The Journal of Industrial Economics
Vol. 52, No. 4 (Dec., 2004), pp. 463-496
Published by: Wiley
Stable URL: http://www.jstor.org/stable/3569859
Page Count: 34
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Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site
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Abstract

This paper examines four million daily price observations for more than 1,000 consumer electronics products on the price comparison site Shopper.com. We find little support for the notion that prices on the Internet are converging to the 'law of one price.' In addition, observed levels of price dispersion vary systematically with the number of firms listing prices. The difference between the two lowest prices (the 'gap') averages 23 per cent when two firms list prices, and falls to 3.5 per cent in markets where 17 firms list prices. These empirical results are an implication of a general 'clearinghouse' model of equilibrium price dispersion.

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