Price Dispersion and the Value of Information in Online Retail Markets

Abstract: Compared to conventional markets, online markets o er many informational advantages to consumers. It is seemingly easy to compare prices online and still, economists have found temporal price dispersions in markets for homogeneous goods. Existing research uses data from the turn of the millennial, yet it's ndings may not apply to today's markets, as online markets have developed rapidly and are becoming increasingly important to consumers and rms. In this thesis, I measure the price dispersion of homogeneous goods in German online markets. I nd signi cant levels of price dispersion, comparable to those in previous research. I furthermore examine how price dispersion relates to market characteristics: My analysis indicates that price dispersion shows a nega- tive relationship to average price levels and no signi cant relationship to the number of sellers in the market. Lastly, I simulate consumer search behavior to obtain estimates of the value of information to consumers. I nd that consumers can be broadly categorized into two groups, namely of low and high search intensity. For the analyses, I collected price data of 207 homogeneous electronics products from a German price com- parison website.