Price Levels and Price Dispersion on the Internet: A Comparison of Pure Play Internet, Bricks -and-Mortar, and Bricks-and-Clicks Retailers

Abstract

Price levels and price dispersion on the Internet have attracted a lot of research and managerial attention. Contrary to initial predictions that the Internet would lead to the emergence of a frictionless economy, empirical research shows that online price dispersion is persistent and is no lower than offline price dispersion. There have been a few studies comparing price levels at online and offline retailers, but not much is known about how prices compare among three types of retailers, namely, pure play, bricks-and-mortar (traditional), and bricks-and-clicks (multichannel) retailers. We address this important issue in this paper through an empirical analysis of price levels and price dispersion in the book and compact disc (CD) categories among the three types of retailers in Italy during early 2002. Our results, based on an analysis of 13720 price quotes, show that when list prices are considered, traditional retailers have the highest prices, followed by multichannel and pure play e-tailers, in that order. However, when shipping costs are included, multichannel retailers have the highest prices, followed by pure play e-tailers and traditional retailers, in that order. With regard to price dispersion, pure play e-tailers have the highest range of prices, but the lowest variability (standard deviation). Multichannel retailers have the highest standard deviation in prices with or

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