Price Dispersion in Online Grocery Stores: An Analysis of the UK Market

Search costs is the key determinant of price variance in offline markets. Yet, despite the lack of significant search costs, it is observed that price dispersion in online grocery markets still exist. This paper explores the possible determinants of this phenomena through an empirical model. Price data was gathered for the period of thirteen weeks for twenty-one product categories. In essence, the findings suggest that there is an indication of a price-quality relationship, but more significantly, retailers undertake randomized pricing strategies, culminating in sporadic price changes across the given time period.