Herd Behaviour and Preying on the Weak - On Price Dispersion and the Intra-Distribution Mobility of Retailers in the Swedish Online Market

Sammanfattning: By examining six popular consumer electronic products in a detailed dataset gathered from a leading price comparison site, we show that retailers in the Swedish online market can be divided into two broad categories. The first group charge higher prices, change them frequently in response to competitors and have lower levels of customer satisfaction. In contrast, the other group of retailers exhibit lower prices, individual and less frequent changes with higher levels of customer satisfaction. These price setting behaviours cause local intra-distribution mobility not predicted by theory; firms frequently move up and down the cross-sectional price distribution at all levels, but do not move far from their initial position. Consistent with clearinghouse models of price dispersion, our findings support that uninformed consumers have much to gain from using price comparison sites.