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

This paper examines 4 million price observations over an eight month time period for 1000 of the best-selling consumer electronics products found on the price comparison site Shopper.com. We find that observed levels of price dispersion vary systematically with the number of firms listing price quotes for a given product. For example, for products where only two firms list prices, the gap between their prices averages 22 percent. In contrast, for products where 17 firms list prices (the average in our sample), the gap is only about 3.5 percent. Further, we find little support for the notion that prices on the Internet are converging to the “law of one price.” The average range in prices was about 40 percent, and the average gap between the two lowest prices listed for a given product remained stable at around 5 percent. We show that the combination of stable and ubiquitous price dispersion, coupled with dispersion that differs in the small and in the large, is consistent with a number of theoretical models of equilibrium price dispersion. JEL Numbers: D4, D8, M3, L13.