Homogenous goods markets: an empirical study of price dispersion on the internet Online publication date: Tue, 25-Nov-2014
by Thierry Warin; Daniel Leiter
International Journal of Economics and Business Research (IJEBR), Vol. 4, No. 5, 2012
Abstract: This paper presents the results of an empirical study of price dispersion in homogenous goods markets. Modern economic theory suggests that markets will inevitably have information asymmetries resulting in equilibriums with price dispersion even when goods are perfectly homogenous. Earlier studies have tried to explain price dispersion in online markets using variables not related to information: seller characteristics, market competitiveness and time of entry. Our study enhances the previous literature by focusing exclusively on information. In this paper, we employ both cross-sectional and time series data gathered directly from Pricegrabber.com, one of the internet's most popular and comprehensive online shopping/price-comparison sites. We show that, unsurprisingly, price dispersion exists in online markets for the same reason it exists in traditional retail markets: 'noisy monopolists' that create information asymmetries in their quest for monopolistic profits.
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