Price dispersion, chain heterogeneity, and search in online grocery markets

Abstract

This paper identifies patterns of cross-sectional and temporal price dispersion-in the Spanish online grocery retail market-and evaluates the extent to which search costs and chain heterogeneity explain such dispersion. We build a data set comprising 836,074 prices for the most popular grocery products sold online by Spanish national chains at different locations. Our results show that price dispersion is still present (albeit to a lesser extent) even after controlling for chain heterogeneity and that it persists over time. We structurally estimate search costs distributions for two different baskets of goods using price data while accounting for vertical product differentiation. The analysis suggests that the extent of search is low. According to our estimates more than two thirds of consumers do not compare prices among supermarkets. We also find that more frequently purchased products have lower search cost and also lower price-cost margins.

Evidence on search costs under hyperinflation in Brazil: The effect of Plano Real

“…The pattern of consumers exhibiting fairly high search costs is a common feature in the literature. Moraga- González and Wildenbeest (2008), Wildenbeest (2011), and González and Miles-Touya (2018) document the same behavior. The novelty of this paper is its extension of the search-cost approach to different inflationary environments in a developing economy.…”

“…There is evidence of fairly high search costs in real life. González and Miles-Touya (2018) calculate a share of 90% of consumers who search for one or two firms, and Moraga- González and Wildenbeest (2008) calculate a share ranging from 60% to 90%. De Los Santos (2018) also reports that consumers visit relatively few firms before buying a product.…”

“…4 Despite the relevance of search-costs heterogeneity, a great deal of room remains for estimations of real-life markets, especially in developing countries. González and Miles-Touya (2018) analyze data on the Spanish food retail market and investigate the impact of search costs and vertical product differentiation on price dispersion. The authors find evidence of fairly high search costs in the market.…”

Price setting in Brazil from 1989 to 2007

“…Despite the relevance of search-costs heterogeneity, a great deal of room remains for estimations of real-life markets, especially in developing countries. González and Miles-touya (2018) analyze data on the Spanish food retail market and investigate the impact of search costs and vertical product differentiation on price dispersion. The authors find evidence of fairly high search costs in the market.…”

“…The literature on models of price dispersion covers a wide range of markets in different countries, such as groceries [Caglayan et al (2008) in Turkey, Richards et al (2016) in the UK, and González and Miles-touya (2018) in Spain], electronics [Baye et al (2006) for online sales in the US and abroad and Gatti and Kattuman (2003) for several Europeans countries], books [Hong and Shum (2006) in the US and Ancarani and Shankar (2004) in Italy] and airlines [Borenstein and Rose (1994) in the US]. See also Hortaçsu and Syverson (2004) for data on mutual funds.…”