Prices and Price Dispersion on the Web : Evidence from the Online Book Industry

Using data collected between August 1999 and January 2000 covering 399 books, we examine pricing by thirty-two online United States-based bookstores. At the aggregate level, we find that both advertising and competitive structure have the predicted effects. More competition leads to lower prices and to lower price dispersion. Holding competitive structure constant, more widely advertised items also have lower prices. At the firm level, we observe considerable heterogeneity in behavior. Firms have differentiated (or attempted to differentiate) on dimensions such as brand, price, and selection.