Price Dispersion in Internet Sales : Data from an Online Marketplace Contradict Lab Experiments

This paper considers three hypotheses about the strategic origin of price dispersion in homogeneous product online sales. The first two are the E-equilibrium and the quantal-response equilibrium (QRE) in a pure Bertrand setting involving the boundedly rational behavior of sellers. The third introduces the share of loyal consumers into the model of competition. These hypotheses were supported by estimations on experimental lab data. We test the hypotheses on a set of real prices for 30 models of household appliances collected from the largest Russian online marketplace Market.Yandex.ru. In contrast to the previously reported experimental data, we found very limited support for any of these explanations. QRE showed the best performance on the data. For most of the products it accurately predicts central tendency, i.e. the mean and the median. However, the shape of the observed price distributions is not explained well by any of the models. These results pose new challenges for theoretical explanations of observed Internet prices