Graduation Year

2015

Document Type

Campus Only Senior Thesis

Degree Name

Bachelor of Arts

Department

Economics

Reader 1

Roberto Pedace

Reader 2

Jill Harris

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© 2015 Caroline Hu

Abstract

Despite expectations in the late 1990s that the Internet would lead to frictionless commerce, empirical research shows that electronic commerce is characterized by persistent price dispersion. This paper examines reasons why online price dispersion exists in the books, CDs, and consumer electronics retail sectors. The Internet allows for multi-channel retailing, and it influences supply, demand, and market-related factors for both retailers and consumers. These factors shape retailers’ price-setting abilities which, in turn, shape their pricing strategies. I find that different pricing strategies result in online price dispersion, and I ultimately predict that retail e-commerce markets, which are oligopolistic in nature, will continue to exhibit persistent price dispersion. In particular, price dispersion will decrease the most in the CDs sector, followed by the books and then the consumer electronics sectors.

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