Gorodnichenko, Υ., Talavera, Ο. & Sheremirov, S. (2015) “Will e-commerce make prices more flexible?, VoxEU Organisation, 21 Ιανουαρίου.
An increasing share of purchases are made online where price changes are very cheap. This column presents new evidence on price dispersions and frictions using novel data from an online shopping platform from the US and the UK. Online prices are more flexible than prices in conventional stores but still sticky. Prices of goods sold online could be as imperfect as in regular markets.
Today, it’s hard to imagine the world without the internet. PewResearch Internet Project reports that the internet is used by 87% of American adults, up from 14% in 1995. Apart from changing the way we communicate, connect, or acquire information, the internet has also changed our shopping habits. With just a few clicks, one can buy almost anything online and get it delivered promptly! Not surprisingly, the growth of e-commerce has been phenomenal. Virtually non-existent 15 years ago, e-commerce sales stood at $263.3 billion and accounted for 5.6% of total retail sales in the US in 2013.
Furthermore, the internet offers seemingly limitless opportunities to the retail sector by enabling sellers to collect and process massive amounts of data to tailor prices and product characteristics to specific whims of consumers and ever-changing economic conditions. A popular view (e.g., Kannan and Kopalle 2001) holds that prices for goods and services sold online should approach—if not now, then eventually—the flexibility of auction or stock prices. Indeed, the internet makes it trivial to compare prices across sellers, the cost of posting a new price is minimal, the best price is just a few clicks away, the physical location of online sellers is largely irrelevant, and numerous services advise online shoppers on best time and location of the purchase. Should one expect extinction of sticky prices then?
In a recent paper (Gorodnichenko et al. 2014), we provide new evidence on the nature and sources of price dispersion and frictions in price adjustment using data from a leading online shopping platform on daily prices for more than 50,000 goods in 22 broadly-defined consumer categories in the US and the UK between May 2010 and February 2012. We document properties of online prices (frequency of price adjustment, price synchronisation across sellers and goods, size of price changes) and compare our findings to results reported for price data from conventional, brick-and-mortar stores. Our dataset is unique in a number of ways.
- First, it covers an exceptionally broad spectrum of consumer goods (precisely defined at the level of unique product codes) and sellers, enhancing comparability with brick-and-mortar stores.
- Second, it contains daily price listings over the period of nearly two years, allowing us to study high-frequency variation in prices, which is especially important for e-commerce.
- Third, each price listing comes with data on the associated number of clicks, which serves as a proxy for demand and relevance to consumers.
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