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Indiana University Bloomington

Doctoral Programs

1960 Notable

From 1960-2013, we prepared nearly 1,200 men and women
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Journal Articles

Price Dispersion in the Lab and on the Internet: Theory and Evidence

2004, Rand (Bell) Journal of Economics

Michael R. Baye, John Morgan


Price dispersion is ubiquitous in settings that closely approximate textbook Bertrand competition. We show that only a little bounded rationality among sellers is needed to rationalize such dispersion. A variety of statistical tests, based on datasets from two independent laboratory experiments and structural estimates of the parameters of our models, suggest that bounded-rationality-based theories of price dispersion organize the data remarkably well. Evidence is also presented to suggest that the models are consistent with data from a leading Internet price comparison site.


Michael R. Baye and John Morgan, "Price Dispersion in the Lab and on the Internet: Theory and Evidence," Rand Journal of Economics, Vol. 35, No. 3 (Autumn 2004), pp. 446-449.