Scandinavian Working Papers in Economics

HFI Working Papers,
Institute of Retail Economics (Handelns Forskningsinstitut)

No 8: Is intertemporal price discrimination the cause of price dispersion in markets with low search costs?

Charlie Lindgren (), Sven-Olov Daunfeldt , Niklas Rudholm and Siril Yella
Additional contact information
Charlie Lindgren: Dalarna University, Postal: Högskolegatan 2, 791 31, Dalarna, Sweden
Sven-Olov Daunfeldt: Institute of Retail Economics (Handelns Forskningsinstitut), Postal: Handelns Forskningsinstitut, Regeringsgatan 60, 103 29 Stockholm, Sweden and Dalarna University, Högskolegatan 2 791 31, Dalarna, Sweden
Niklas Rudholm: Institute of Retail Economics (Handelns Forskningsinstitut), Postal: Handelns Forskningsinstitut, Regeringsgatan 60, 103 29 Stockholm, Sweden
Siril Yella: Dalarna University, Postal: Högskolegatan 2, 791 31, Dalarna, Sweden

Abstract: Theories of intertemporal price discrimination imply that prices must be chosen using mixed strategies, with retailers changing their prices randomly over time. Otherwise, consumers will learn which retailer has the lowest price, and eventually, all customers will patronize the lowest price retailer, or all retailers will charge the same price. We test whether price dispersion is explained by intertemporal price discrimination strategies using a dataset of identical products sold through the PriceSpy price comparison website. Our results show that there are clusters of retailers with similar pricing within each cluster but different price levels between clusters even after controlling for retailer heterogeneity. Retailers also remain in the same price cluster over time, suggesting that consumers have ample opportunities to learn which retailers belong to which price cluster. Intertemporal price discrimination is thus unlikely to have caused the observed price dispersion.

Keywords: Clustering; intertemporal price discrimination; online retailing; e-commerce; price comparison websites

JEL-codes: C38; D22; D83; L81

12 pages, February 13, 2020

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