Scandinavian Working Papers in Economics

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

No 18: PRICING IN RETAIL MARKETS WITH LOW SEARCH COSTS: EVIDENCE FROM A PRICE COMPARISON WEBSITE

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

Abstract: Price comparison websites, where consumers can compare prices at a search cost that is close to zero, have become increasingly common around the world. Using daily information on prices, click-throughs, and the number of retailers for a sample of consumer electronics and durable goods over a period of 62 months, we investigate the effects of the increased use of the Swedish price comparison website PriceSpy on prices and price dispersion. We find that increased use by consumers created potential savings of 290 million SEK in 2016, while increased use by retailers created potential savings of approximately 2.9 billion SEK. Reduced prices due to increased use of the price comparison website thus resulted in total potential consumer savings of nearly 3.2 billion SEK (289 million EUR) for the year 2016 alone. Price comparison websites thus place downward pressure on prices, thereby increasing economic efficiency. We also find that the increased use of the price comparison website by retailers resulted in increased price dispersion, while the effect of more consumers using the website was mixed.

Keywords: Consumer search; price dispersion; information; e-tailing; e-commerce

JEL-codes: D21; D22; D83; L11; L81

44 pages, March 31, 2021

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