If you’re a bargain hunter, it’s common to spend time researching prices before making purchases. After all, you wouldn’t want to buy a washing machine at your local Lowes store only to find a lower price offered on Lowes.com. However, I found in a recent study that retailers’ offline and online prices are the same more than 70% of the time.
That’s good news for consumers, who don’t need to worry about price comparisons when deciding whether to use a retailer’s website or visit a local store. They can choose instead based on other factors like convenience and product availability.
This finding is important for economists too. Online prices are increasingly being used in measurement and research applications, including studies of pricing behaviors, price stickiness, international relative prices, and exchange-rate dynamics. Many national statistical offices are even considering the use of online data in official consumer price Indexes.
There are good reasons for using online prices: they are easy to collect on a large scale and can provide huge data sets to test economic theories. It is extremely difficult and expensive to collect similar data on in-store prices.
But as we increasingly use online prices, a fundamental question is whether they are indeed similar to the prices that can be obtained offline. After all, online sales are still less than 10% of all retail transactions in the U.S.
To answer this question, I conducted the first large-scale comparison of online and offline prices in large multichannel retailers. I chose multichannel retailers, which sell both online and in physical stores, as they still concentrate the vast majority of retail transactions. I did not include online-only retailers like Amazon AMZN, +0.05% and Ebay EBAY, +0.04% because they currently represent a small percentage of retail transactions in most countries.
Read the full post at MarketWatch.
Alberto Cavallo is the Douglas Drane Career Development Professor in Information Technology and Management and an Associate Professor of Applied Economics at the MIT Sloan School of Management.