Price dispersion under the Adverse Selection Environment

The price dispersion means different prices for same goods. In the Internet economy, many economists reckon that the price dispersion in the e-commerce markets should descend along with the dropping of search cost. However, the correlative empirical studies reach a contrary opinion: there not only exist price dispersion in the e-commerce market, but also has larger dispersion degree than the traditional market, thereby gaining a ‘price paradox’ that is inconsistent with traditional economic principle. Based on the adverse selection Perspective, this paper puts up a new interpretation about the price dispersion in the e-commerce markets. Actual data from five online markets in China serves as a case study to help analyze the characteristics of the price dispersion. Finally, the paper probes into resolving approaches eliminating and decreasing price dispersion in order to raise the business efficiency in the e-commerce markets.