Abstract According to the theory of search, the online market should hold the one-price rule since consumers’ search cost is greatly reduced, but a lot of evidence shows that price dispersion prevails in the online market. This paper chooses the prepaid calling card from the Tmall website, the highly homogeneous standardized virtual product, as the object of this study. The results from kernel density estimation show that price dispersion does exist. Besides, by using fixed-effect vector decomposition model (FEVD) and Mundlak model, this paper explores the factors that affect the degree of price dispersion. It is found that an increase in the retailer heterogeneity and the number of retailers may aggravate price dispersion while an increase in the popularity and the value of goods may reduce price dispersion. In addition, the degree of price dispersion exhibits downward trend over time. This paper constitutes a useful supplement to the existing literature due to the innovative data analysis. The conclusions contribute to understanding the efficiency of the Chinese online market and provide some clues to the Internet market issue of “efficiency paradox”.
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