An empirical study on pricing behaviors of internet and conventional markets

With the progress of Internet and e-commerce, there have been many researches on the market efficiency of the Internet markets using real price data. Contrary to the common expectations by many economists, most of the previous researches have failed to prove that the Internet market is more efficient than the conventional market. The paper empirically analyzes the pricing behavior of Internet and conventional retailers in South Korea. We have collected real price data on CDs and TVs from various types of retailers, from which we have analyzed three aspects of pricing behavior: price level, price change over time, and price dispersion across the retailers. We have found that the average prices of CDs and TVs at the Internet retailers are lower than those at the conventional retailers. We have also found that there is a close association between the behaviors (e.g., magnitude and timing of changes) of TV prices at the Internet retailers and those at the conventional retailers. It has been observed that the range of the CD prices at the Internet retailers is less than a half of the range at the conventional retailers, which can be considered as an evidence of a relatively stronger price competition at the Internet market compared with the conventional market.