V. Discussion
Our findings suggest that behavioral factors, such as limited attention, produce transactional price dispersion, even in settings where the purchase experience is exactly identical. Even though our consumers elected to sort offers by price, they appear more sensitive to the location of a listing relative to rival offers than to the price itself. Only at price differences of 2% or greater do consumers start to respond to price differences.
This should not be taken to mean that charging higher prices represents an effective business strategy. In exchange for a small increase in price, sellers suffer massive decreases in volume owing to their disadvantageous screen location. Depending on costs, it might be an effective strategy to price high and then to pay the necessary fees to appear at the top of the default list of search results a la Google. On a platform like Taobao, limited attention generates considerable value. Because location matters more than price, firms are willing to pay for privileged positions. They can profitably do so by charging premium prices.
While we do not claim that strategic seller behavior that leads to price dispersion does not exist, we find little evidence in favor of the “strategic” price dispersion of the sort envisaged by Baye and Morgan (2001). Competition for price-sensitive “shoppers” drives dispersion, at least theoretically, yet real-world “shoppers” are not terribly price-sensitive, and thus, defeat the rationale for producing price uncertainty suggested by the theory. Transactional price dispersion displays patterns much more consistent with behavioral models than with the homo economicus players inhabiting most theory models on the subject.
