Closely Competing Firms and Price Adjustment: Some Findings from an Online Marketplace*

Abstract

AbstractWe investigate retailers' price‐setting behavior using a unique dataset containing by‐the‐second records of prices offered by closely competing retailers on a major Japanese price‐comparison website. First, we find that, when the average price of a product across retailers falls rapidly, the frequency of price adjustments increases, and the size of price adjustments becomes larger. Second, we find positive autocorrelation in the frequency of price adjustments, implying that there tends to be clustering where price adjustments occur in succession. In contrast, there is no such autocorrelation in the size of price adjustments. These two findings indicate that the behavior of competing retailers is characterized by state‐dependent pricing rather than time‐dependent pricing.