Price dispersion – online and offline
Price dispersion is measured as the distribution of prices for the same product/service across sellers at a given point in time. (So, lower dispersion means that prices across sellers at a point in time are more similar to each other, i.e., there is less variability in pricing). Price dispersion is thought to be a good measure of information efficiency in a market. For example, when search costs for consumers are low (and consumers can easily compare competitive offers), price dispersion is expected to be lower (i.e., prices of identical/similar products should not vary much across retailers).
For this reason, common wisdom suggests that price dispersion should be lower on the Internet than for offline retailers. One implication of lower price dispersion is that competition among retailers would be more intense online than offline.
Do you agree with the “common wisdom” view that the Internet generates lower price dispersion (and hence, more intense retail competition)? Why – or why not?
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