The New Palgrave Dictionary of Economics

Living Edition
| Editors: Palgrave Macmillan

Pricing Mechanisms in Online Markets

  • Chiara Farronato
Living reference work entry


A wide array of pricing mechanisms exists in online platforms, ranging from auctions and posted prices to haggling and hybrid formats. At the platform level as well as for individual sellers, the choice of pricing mechanism depends on the trade-off between transaction costs and efficient aggregation of information. This trade-off is resolved differently across specific online markets, and even within each market it can evolve over time. In some markets, different pricing mechanisms often coexist side by side, and this can be valuable for experimentation and price discrimination.

This is a preview of subscription content, log in to check access.


  1. Armstrong, Mark. 2006. Competition in two-sided markets. Journal of Economics 37 (3): 668–691.Google Scholar
  2. Backus, Matthew, Thomas Blake, and Steven Tadelis. 2016. On the empirical content of cheap-talk signaling: An application to bargaining. NBER working paper 21285.Google Scholar
  3. Bakos, J. Yannis. 1997. Reducing buyer search costs: Implications for electronic marketplaces. Management Science 43 (12): 1676–1692.CrossRefGoogle Scholar
  4. Baye, M.R, and J. Morgan. 2001. Information gatekeepers on the internet and the competitiveness of homogeneous product markets. American Economic Review 91 (3): 454–474.CrossRefGoogle Scholar
  5. Blake, Thomas, Sarah Moshary, Kane Sweeney, and Steven Tadelis. 2017. Price salience and product choice. Working paper.Google Scholar
  6. Brynjolfsson, Erik, and Michael D. Smith. 2000. Frictionless commerce? A comparison of internet and conventional retailers. Management Science 46 (4): 563–585.CrossRefGoogle Scholar
  7. Caillaud, Bernard, and Bruno Jullien. 2003. Chicken & egg: Competition among intermediation service providers. RAND Journal of Economics 34 (2): 309–328.CrossRefGoogle Scholar
  8. Cavallo, Alberto. 2017. Are online and offline prices similar? Evidence from large multi- channel retailers. American Economic Review 107 (1): 283–303.Google Scholar
  9. Cavallo, Alberto, and Roberto Rigobon. 2016. The Billion Prices Project: Using online prices for measurement and research. Journal of Economic Perspectives 30 (2): 151–178.CrossRefGoogle Scholar
  10. Cullen, Zoë, and Chiara Farronato. 2017. Outsourcing tasks online: Matching supply and demand on peer-to-peer internet platforms. Working paper.Google Scholar
  11. Dinerstein, Michael, Liran Einav, Jonathan Levin, and Neel Sundaresan. 2014. Consumer price search and platform design in internet commerce. NBER working paper 20415.Google Scholar
  12. Doleac, J.L., and LCD Stein. 2013. The visible hand: Race and online market outcomes. The Economic Journal 123 (572).CrossRefGoogle Scholar
  13. Edelman, B., M. Luca, and D. Svirsky. 2017. Racial discrimination in the sharing economy: Evidence from a field experiment. American Economic Journal: Applied Economics 9 (2): 1–22.Google Scholar
  14. Einav, Liran, Dan Knoepfle, Jonathan Levin, and Neel Sundaresan. 2014. Sales taxes and internet commerce. American Economic Review 104 (1): 1–26.Google Scholar
  15. Einav, Liran, Theresa Kuchler, Jonathan Levin, and Neel Sundaresan. 2015. Assessing sale strategies in online markets using matched listings. American Economic Journal: Microeconomics 7 (2): 215–247.Google Scholar
  16. Einav, L., C. Farronato, J. Levin, and N. Sundaresan. 2018. Auctions versus posted prices in online markets. Journal of Political Economy 126 (1): 178–215.CrossRefGoogle Scholar
  17. Elfenbein, Daniel W., Ray Fisman, and Brian McManus. 2012. Charity as a substitute for reputation: Evidence from an online marketplace. Review of Economic Studies 79 (4): 1441–1468.CrossRefGoogle Scholar
  18. Ellison, Glenn, and Sara Fisher Ellison. 2009. Search, obfuscation, and price elasticities on the internet. Econometrica 77 (2): 427–452.CrossRefGoogle Scholar
  19. Euromonitor. 2014. Internet vs store-based shopping the global move towards omnichannel retailing. Technical Report, August. Euromonitor.
  20. Farajallah, Mehdi, Robert G. Hammond, and Thierry Pénard. 2016. What drives pricing behavior in peer-to-peer markets? Evidence from the carsharing platform BlaBlaCar.Google Scholar
  21. Hall, R.E. 2001. Digital dealing: How e-markets are transforming the economy. New York: Norton.Google Scholar
  22. Hall, Jonathan, John J. Horton, and Dan Knoepfle. 2017. Labor market equilibration: Evidence from Uber. Working paper.Google Scholar
  23. Hossain, Tanjim, and John Morgan. 2006. … Plus shipping and handling: Revenue (non) equivalence in field experiments on eBay. Advances in Economic Analysis & Policy 5 (2).Google Scholar
  24. Krishna, Vijay. 2010. Auction theory. Academic/Elsevier.CrossRefGoogle Scholar
  25. Larsen, Bradley. 2014. The efficiency of real-world bargaining: Evidence from wholesale used-auto auctions. NBER working paper Nr. 20431.Google Scholar
  26. Li, Jun, Antonio Moreno, and Dennis J. Zhang. 2016. Agent behavior in the sharing economy: Evidence from Airbnb. Working paper.Google Scholar
  27. Parker, Geoffrey G., and Marshall W. Van Alstyne. 2005. Two-sided network effects: A theory of information product design. Management Science 51 (10): 1494–1504.CrossRefGoogle Scholar
  28. Rochet, Jean-Charles, and Jean Tirole. 2003. Platform competition in two-sided markets. Journal of the European Economic Association 1 (4): 990–1029.CrossRefGoogle Scholar
  29. Rochet, Jean-Charles, and Jean Tirole. 2006. Two-sided markets: A progress report. The Rand Journal of Economics 37 (3): 645–667.CrossRefGoogle Scholar
  30. Sweeting, Andrew. 2012. Dynamic pricing behavior in perishable goods markets: Evidence from secondary markets for major league baseball tickets. Journal of Political Economy 120 (6): 1133–1172.Google Scholar
  31. The Economist. 2000. In the great web bazaar. The Economist.
  32. Wang, Ruqu. 1993. Auctions versus posted-price selling. The American Economic Review 83 (4): 838–851.Google Scholar
  33. Weyl, E.G. 2010. A price theory of multi-sided platforms. The American Economic Review 100 (4): 1642–1672.Google Scholar

Copyright information

© The Author(s), under exclusive license to Macmillan Publishers Ltd., part of Springer Nature 2018

Authors and Affiliations

  1. 1.Harvard University and NBERCambridgeUSA

Section editors and affiliations

  • Catherine Tucker

There are no affiliations available