A Comparison Of Internet Hybrid And Conventional Retailers

There have been many claims that the Internet represents a new "frictionless market". Our research empirically analyzes the pricing behavior for three categories of products when sold through the Internet, hybrid and conventional retail channels. We find that lower prices on the Internet when compared to conventional retailers are dependent on the product category. Additionally, we find that in some product categories, as predicted, Internet retailers change prices in smaller increments than conventional retailers - whereas in other categories we find the opposite effect. We also find that levels of price dispersion depend importantly on the measures employed and the category analyzed. Both in homogenous and less homogenous product categories, the Internet has an impact on pricing strategies; yet, its effects might differ substantially across categories. We conclude that the claim of a "frictionless market," at least currently, cannot be sustained and that product category characteristics have to be taken into consideration.