An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information

We study competition among a score of firms participating in an online market for a commodity computer component. Firms were able to adjust prices continuously; prices determined how the firms were ranked and listed (lowest price listed first), with better ranks contributing to firms’ sales. Using a year’s worth of hourly data for individual firms, we estimate a model of price adjustment, characterizing the factors driving price changes and measuring how much these factors differ across firms (i.e., strategy heterogeneity). We find evidence of managerial inattention as a cause of the price inertia observed in the market. Using separate estimates of the pricing model for groups of related firms, we simulate counterfactuals involving different mixes of these groups.