Why Aren’t the Prices of the Same Item the Same at Me.com and You.com?: Drivers of Price Dispersion Among E-Tailers,” Working paper

Frictionless e-commerce implies that price dispersion for identical products sold by different e-tailers should be smaller than it is offline, but some recent empirical evidence reveals the opposite. A study by Smith et al. (2000) suggests that such a phenomenon may be due to heterogeneity among e-tailers in such factors as shopping convenience, consumer awareness, and trust. These hypotheses, however, remain untested. In this paper, we extend previous research by developing a comprehensive framework of the drivers of online price dispersion that includes market characteristics such as number of competitors, consumer involvement, and product popularity, in addition to e-tailer characteristics and product category differences. We also empirically test our propositions in a more comprehensive manner than prior research by using a range of price dispersion measures covering 6,739 price quotes for 581 products from 105 e-tailers in a variety of product categories including books, CDs, DVDs, desktop computers, laptop computers, PDAs, computer software, and consumer electronics. Specifically, we (1) identify some key dimensions of e-tailer heterogeneity using factor analysis; (2) identify clusters of e-tailers on these dimensions using cluster analysis; (3) analyze how market factors affect price dispersion using regression analyses; and (4) examine how heterogeneity among e-tailers is related to their price