Patrick Scholten

Persistent Price Dispersion in Online Markets

Using data from one of the Internet’s leading price comparison sites for consumer electronics products, we present evidence for the persistence of price dispersion for 36 homogeneous products. The markets for these products are “thick” with an average of over 20 firms selling each product. We show that prices do not converge to the “law of one price” even after an 18 month period. This finding is robust to controls for differences in shipping charges and inventories. Further, we show that product life cycle effects lead to changes in the number of competing firms and the range of price dispersion consistent with the theoretical predictions of the Varian (1980) model. The average number of competing firms declines from about 28 to 10 during the final five months of our dataset. Over this same period, the average range in prices decreases from about 75 percent to 30 percent. After accounting for firm heterogeneities in costs, branding, reputation, trust, product availability and shipping costs, 28 percent of the variation in prices charged for homogeneous products remains unexplained. This is also consistent with the Varian model.

The Value of Information in an Online Consumer Electronics Market

Consumers who bought electronics products at the lowest prices on Shopper.com during 2000 and 2001 saved an average of 16% off the average listed price. The value of the information provided by a service such as Shopper.com depends on the size of the market, which is consistent with a variety of theories. When two firms list prices, consumers save 11% by purchasing at the lowest price rather than at the average price. These savings jump to 20% when more than 30 firms list prices. However, the potential savings accrue only to consumers on the “right” side of the digital divide.

Price dispersion then and now: Evidence from retail and e-tail markets

This paper uses two datasets to examine price dispersion spanning a 24-year period. The first dataset permits us to compare levels of retail price dispersion in 1976 and 2000, while the second allows for a comparison of retail dispersion in 1976 with dispersion in e-tail markets in 2000. Our results indicate that price dispersion in 2000 for both retail and e-tail markets is comparable to that observed in 1976 retail markets. This suggests that, for the products in our sample, the Information Age has done little to reduce price dispersion in retail or e-tail markets.

A Review of Three Directed Acyclic Graphs Software Packages: MIM, Tetrad, and WinMine

This article offers a review of three software packages that estimate directed acyclic graphs (DAGs) from data. The three packages, MIM, Tetrad and WinMine, can help researchers discover underlying causal structure. Although each package uses a different algorithm, the results are to some extent similar. All three packages are free and easy to use. They are likely to be of interest to researchers who do not have strong theory regarding the causal structure in their data. DAG modeling is a powerful analytic tool to consider in conjunction with, or in place of, path analysis, structural equation modeling, and other statistical techniques.

PRICE DISPERSION, PRODUCT CHARACTERISTICS, AND FIRMS’ BEHAVIORS: STYLIZED FACTS FROM SHOPPER.COM

We study how price dispersion varies with product characteristics at a popular online price comparison site – Shopper.com. Our primary finding suggests that price dispersion in online markets varies with product characteristics and firm behavior. We also find evidence that the level of dispersion varies with the percent of firms listing price information in multiple categories. When the percent of firms listing prices in multiple categories is relatively high (low), price dispersion is low (high).

Empirically Testing for Indirect Network Externalities in the LCD Television Market

This paper examines price data on over 222 LCD televisions to estimate indirect network effects arising from two sources. First, we conjecture that the disconnect between the timing of when broadcasters are required to convert to an only digital-signal world and when television manufacturers were required to have an ATSC digital tuner install on all new televisions has created an indirect network effect whereby television that are backward compatible with the analog QAM and VSB-8 systems have short-run value. Over time, however, we argue that the ATSC digital tuner will become more valuable. The second indirect network effect we estimate stems from the number and types of ports available on LCD televisions. In each case, we find statistically significant evidence for the presence of indirect network effects in the market for LCD televisions.

The Nature of Sales in Online Markets: Asymmetric Consumer Information or Benefits to Bulk Shopping?

Price dispersion - firms charging different prices for the same product - is widely observed in both online and traditional offline markets. While most price dispersion is explained by stylized clearinghouse models such as Varian (1980), these models do not explain why prices in offline markets are lower on weekends than during the work week, and before Christmas than after Christmas. We argue that price dispersion online is fully explained by clearinghouse models. First, because search and travel costs are lower online, these anomalous pricing patterns disappear. Second, prices charged by firms, price dispersion, the number of firms posting prices, and the minimum price in the online markets for several products vary in ways that are all consistent with the predictions of clearinghouse models.