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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.

Summary

As e-commerce accelerates and seizes market share across retail categories, the competition between physical and online merchants is suppressing price markups. Experts suspect that this “Amazon effect” may help explain persistently low inflation rates in the US economy. However, as retailers’ margins continue to narrow, prices can fall only so far before sales become unprofitable. Researchers believe that other factors are at work, including online sellers’ price-setting activities. Specifically, e-commerce businesses deploy “a high degree of price flexibility” and “uniform...

About the Author

Alberto Cavallo is an associate professor at Harvard Business School.

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