Working Paper: NBER ID: w25138
Authors: Alberto Cavallo
Abstract: I study how online competition, with its algorithmic pricing technologies and the transparency of the Internet, can change the pricing behavior of large retailers and affect aggregate inflation dynamics. In particular, I show that online competition has raised both the frequency of price changes and the degree of uniform pricing across locations in the U.S. over the past 10 years. These changes make retail prices more sensitive to aggregate ``nationwide" shocks, increasing the pass-through of both gas prices and nominal exchange rate fluctuations.
Keywords: Online Competition; Pricing Behavior; Inflation Dynamics
JEL Codes: E31; E5; E7
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Online competition (L13) | Increased frequency of price changes (E30) |
| Online competition (L13) | Decrease in duration of price stability (E31) |
| Online competition (L13) | Changes in pricing behaviors (D49) |
| Online competition (L13) | Uniform pricing strategies (L11) |
| Increased online competition (L81) | Reduced price dispersion (D49) |