On the Efficiency of Internet Markets for Consumer Goods

Ratchford_Pan_Shankar_JPPM_2003

Brian T. Rachford, Xing Pan, and Venkatesh Shankar

This article was published in Journal of Public Policy and Marketing, 22 (Spring 2003), 4-16.

Despite claims that electronic commerce lowers search costs dramatically, and therefore makes it easy for consumers to spot the best buy, empirical studies have found a substantial degree of price dispersion in electronic markets for consumer goods. This study investigates the consumer welfare implications of observed price levels and price dispersion in electronic markets. We examine the consumer welfare implications of changes in the structure of electronic commerce markets employing comprehensive data sets on e-tailer prices and services collected from BizRate.com in November 2000 and 2001. We find that price dispersion decreased substantially between these two periods, and that measured differences in e-tailer services bear little relation to e-tailer prices.