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More Amazon Effects
Report

More Amazon Effects

Online Competition and Pricing Behaviors

Alberto Cavallo
Fed Kansas City, 2018
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Editorial Rating

8

Qualities

  • Analytical
  • Innovative
  • For Experts

Recommendation

According to US government data, almost 10% of total retail sales take place via e-commerce. Compared to traditional brick-and-mortar sellers, online vendors tend to adjust their pricing more frequently and set identical prices across geographies. This “Amazon effect” may be one driver of lower inflation levels in the US economy. Professor Alberto Cavallo scrutinizes the economics of the online sales environment and its ramifications on inflation. Although it could have been more succinct, this scholarly report will nonetheless reward analysts and policy experts who wish to explore the nuances of online pricing.

Take-Aways

  • As e-commerce accelerates and seizes market share across retail categories, the “Amazon effect” may help explain persistently low inflation rates in the US economy. 
  • Online firms use metrics, algorithms and “dynamic pricing” to rapidly reflect consumer demand, rivals’ prices and supply constraints. 
  • E-commerce retailers tend to adopt a uniform pricing model, in which purchasers in different places pay the same price for the same product. 

About the Author

Alberto Cavallo is an associate professor at Harvard Business School.

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