Prices and Price Dispersion on the Web: Evidence from the Online Book Industry

By Karen Clay, Ramayya Krishnan, Eric Wolff. 2001

431 citations recorded by the source corpus.

Using data collected between August 1999 and January 2000 covering 399 books, including New York Times bestsellers, computer bestsellers, and random books, we examine pricing by thirty-two online bookstores. One common prediction is that the reduction in search costs on the Internet relative to the physical channel would cause both price and price dispersion to fall. Over the sample period, we find no change in either price or price dispersion. Another prediction of the search literature is that the prices and price dispersion of advertised items or items that are purchased repeatedly will be lower than for unadvertised or infrequently purchased items. Prices across categories of books appear to conform to this prediction, with New York Times bestsellers having the lowest prices as a fraction of the publisher's suggested price and random books having the highest prices. Interestingly, price dispersion does not conform with this prediction, apparently for reasons related to stores' decisions to carry particular books. One reason why we may not observe convergence in prices is because stores have succeeded in differentiating themselves even though they are selling a commodity product. We observe differentiation (or attempted differentiation) by a significant number of firms.

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Citations in the corpus

Prices, Spatial Competition, and Heterogenous Producers: An Empirical Test (2007, unknown): “Recent research such as Sorensen (2000); Clay, Krishnan, and Wolff (2001); Goolsbee and Brown (2002); Chevalier and Goolsbee (2003); Baye, Morgan, and Scholten (2004); and Goldberg and Verboven (2005) has inferred consumers' substitution possibilities (or lack thereof) from observed price…”
Measuring Prices and Price Competition Online: Amazon.com and BarnesandNoble.com (2003, background): “Sorenson (2000), Brynjolfsson and Smith (2000), and Clay et al. (2000) use the dispersion across Internet retailers as a measure of the imperfection of market competition.”
Using price distributions to estimate search costs (2006, background): “For example, Brynjolfsson and Smith (2000), Clay, Krishnan, and Wolff (2001), and Goolsbee (2001) have attempted to understand the nature of search costs by comparing the degree of price dispersion between online and traditional retail markets.2 However, one difficulty in measuring search costs is…”
Consumer search and dynamic price dispersion: an application to gasoline markets (2011, unknown): “7 Other studies of online markets include Clay et al. (2001), Smith and Brynjolfsson (2001) and Baye et al. (2004).”