The New Palgrave Dictionary of Economics

2018 Edition
| Editors: Macmillan Publishers Ltd

Pricing on the Internet

  • Michael R. Baye
  • John Morgan
Reference work entry


While many conjectured that the information-rich and frictionless nature of online markets would result in marginal cost pricing, this has proved not to be the case. Price dispersion online is ubiquitous. The main reason is that price discovery occurs through platforms that have an incentive to ensure that prices are dispersed so that information is valuable. We survey models of platform pricing and trace the impact of their decisions downstream to e-retailers. Finally, we highlight the connection between empirical findings and theory predictions for e-retail pricing.


E-retail Internet Network effects Platform Pricing Price dispersion Two-sided market 

JEL Classification

D4 D8 M3 L13 
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Copyright information

© Macmillan Publishers Ltd. 2018

Authors and Affiliations

  • Michael R. Baye
    • 1
  • John Morgan
    • 1
  1. 1.