Is the internet making markets more efficient? The evidence according to price indicators in Spain

Abstract

It has been theorized that low search costs associated with e-commerce imply greater levels of efficiency relative to the conventional retail channels. Multiple empirical studies confirm this hypothesis concerning price level, although the evidence is mixed relative to price dispersion. This article empirically compares the efficiency of the Internet with the conventional retail channel through 4 price indicators for the CD market. The results, based on 1,603 prices collected in Spain, are surprising. The conventional channel shows greater efficiency for both posted and final prices. These findings together with the coincident results of other reviewed studies would suggest key factors related to the development of ecommerce. Implications of the study and future considerations are discussed. © Intangible Capital, 2009.