Competitive Dynamics of Online and Brick-and-Mortar Retail Prices

This article analyzes the competitive interplay of prices among retail channels: offline (brick-and-mortar) and online (such as retailers’ websites and online marketplaces). Our empirical analysis draws from two data sources: a novel hand-collected price dataset, and a national aggregate scanner dataset. We find evidence of a close competitive relationship between the online and offline channels, and that prices in one channel are highly responsive to changes in the other channel’s prices. Based on time series analyses, we find that online prices are more responsive to brick-and-mortar prices than the reverse, as well as evidence of asymmetric responses depending on which channel’s price is higher. Our findings suggest that consumers online face almost identical pricing to consumers offline. Of relevance for competition and regulation, our findings suggest that competition among retail goods is vigorous, that these respond quickly to each other’s prices and that, as a consequence, regulation affecting online commerce would be expected to affect prices in brick-and-mortar stores, and vice versa.

By Rosa M. Abrantes-Metz & Mame Maloney^[1]

I. EXECUTIVE SUMMARY

This article summarizes a recent white paper by the authors analyzing the competitive interplay of prices amongst retail channels: offline (brick-and-mortar) and online (such as retailers’ websites and online marketplaces).^[2]

We find evidence of a close competitive relationship between the two