Explaining Price Dispersion in e-marketplace

Abstract

It is predicted that the increased availability of information on ubiquitous Internet, search cost for information for product and service would be low enough to increase price competition, and reduce the price dispersion among products and services. However, studies are reporting conflicting results on this matter. Even the Internet has infiltrated our day to day commerce, it seems that price dispersion still exists even for popular commodities sold on Internet such as books. Through an experiment, this study explores (1) whether such a price dispersion exists, and (2) why this price dispersion still exists from the perspective of customer segmentation in relations to their search behavior. The results indicate that the scope and intensity of information search in on Internet is not as extensive as predicted. Despite the cost of search on Internet is much lower compared to physical visitation of shops, it may not be as low as we expected. Results also indicate that the traditional consumer segmentation may not be applicable to the consumers in e-marketplaces. Interestingly, brand loyalists have shown higher level of search activities than other groups.