Saturday, 4 June 2016

Price dispersion and the internet

One advantage one should see resulting from the advent of online shopping is a reduction in price dispersion. After all it is cheap and easy to checkout the price of any goods we want on the web pages of many different sellers. And there are now websites that will do the checking for you. So you would expect to see the prices of a given good converging.

But does this happen?

As an example I checked out the pre-order price of my forthcoming book.

The publisher lists the book at 95 pounds, around NZ$199. A British bookseller lists it at NZ$180. A US booksellers has the book at US$160 or around NZ$230 . An Australian website will sell you the book for AUS$251 or approximately NZ$266. So a wide range of prices on offer.

But the strangest set of prices come from two New Zealand based retailers, one of whom lists the book at NZ$355 and the other at NZ$184!

Now I'm not sure the book is worth any of those prices but clearly it pays to shop around.

The question all this raises with me is why such a range of prices? Low search costs should result in a much lower price range. Do retailers know something economists don't? Do they know that there are transactions costs to search that means people do a lot less of it than economists assume? If so, what are those costs? If search costs are low then why the price dispersion? It could be a thin market problem. The market for economics books on the theory of the firm could so small that price competition doesn't occur. Or it could be that those few people who want such a book have a high willingness to pay and a high opportunity cost of search time so the first seller they come to is the one they go with. Seems unlikely to me.

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