NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Price Setting in Online Markets: Does IT Click?

Yuriy Gorodnichenko, Viacheslav Sheremirov, Oleksandr Talavera

NBER Working Paper No. 20819
Issued in December 2014
NBER Program(s):Economic Fluctuations and Growth, International Finance and Macroeconomics, Monetary Economics

Using a unique dataset of daily U.S. and U.K. price listings and the associated number of clicks for precisely defined goods from a major shopping platform, we shed new light on how prices are set in online markets, which have a number of special properties such as low search costs, low costs of monitoring competitors' prices, and low costs of nominal price adjustment. We document that although online prices are more flexible than offline prices, they continue to exhibit relatively long spells of fixed prices, large size and low synchronization of price changes, considerable cross-sectional dispersion, and low sensitivity to predictable or unanticipated changes in demand conditions. Qualitatively these patterns are similar to those observed for offline prices, which calls for more research on the sources of price rigidities and dispersion.

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Document Object Identifier (DOI): 10.3386/w20819

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