Question

Price dispersion is measured as the distribution of prices for the same product/service across sellers at a given point in time.

Lower dispersion means that prices across sellers at a point in time are more similar to each other, i.e., there is less variability in pricing. Price dispersion is thought to be a good measure of information efficiency in a market. For example, when search costs for consumers are low (and consumers can easily compare competitive offers), price dispersion is expected to be lower (i.e., prices of identical/similar products should not vary much across retailers).

For this reason, common wisdom suggests that price dispersion should be lower on the Internet than for offline retailers. One implication of lower price dispersion is that competition among retailers would be more intense online than offline.

Do you agree with the “common wisdom” view that the Internet generates lower price dispersion (and hence, more intense retail competition)? Why – or why not?

Answer 1

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Yes, I agree because the internet generate lower price dispersion. This is due to;

-internet lowers the cost of promotion

-makes it much easier for the buyer to connect with seller.

-Internet is the main driver of information efficiency

Explanation:

-internet lowers the cost of promotion-price dispersion in marketing explains the variations in the price levels or the price variability. The price dispersion can be high or low depending on the competitors and other cost factors operating in a given market. The coming of the internet have resulted in lower price dispersion as the costs of promotion as well as the search costs have greatly declined. In addition, most of the costs incurred through the promotions in the internet especially are much lower and consistent and this would result in the price dispersion to be minimized.

-makes it much easier for the buyer to connect with seller-the internet supports online marketing and other e-commerce platforms. That means the cost of linking up with the customers would be greatly lowered. There would therefore be limited variations in price level as the companies can easily access the internet and improve on their competitive advantages. The lower price variability is responsible for increased competition in a given market and declining price variations.

-Internet is the main driver of information efficiency-when the information efficiency is enabled, the perfect knowledge of the market would be known and the companies would always provide uniform and fair pricing based on market forces. The fair and uniform pricing reduces the variations among the various price levels resulting in the lower price dispersion. The lower price dispersion is a major disadvantage to firms in terms of competition but is crucial for consumers who would get value for their money.

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