Article ID: | iaor20116777 |
Volume: | 22 |
Issue: | 2 |
Start Page Number: | 269 |
End Page Number: | 288 |
Publication Date: | Jun 2011 |
Journal: | Information Systems Research |
Authors: | Ghose Anindya, Yao Yuliang |
Keywords: | e-commerce |
Price dispersion is an important indicator of market efficiency. Internet‐based electronic markets have the potential to reduce transaction and search costs, thereby creating more efficient, ‘frictionless’ markets, as predicted by theories in information economics. However, earlier work has reported significant levels of price dispersion on the Internet, which is in contrast to theoretical predictions. A key feature of the existing stream of work has been its use of posted prices to estimate price dispersion. In theory, this can lead to an overestimation of price dispersion because a sale may not have occurred at the posted price. In this research, we use a unique data set of actual transaction prices collected from both the electronic and offline markets of buyers in a business‐to‐business market to evaluate the extent of price dispersion. We find that price dispersion in the electronic market is as low as 0.22%, which is substantially less than that reported in the existing literature. This near‐zero price dispersion suggests that in some electronic markets the ‘law of one price’ can prevail when we consider