Do Internet Converge Prices to the 'Law of One Price'? Evidence fromTransaction Data for Airline Tickets

Internet presumably reduces search cost driving price to the competitivelevel. Evidence from empirical research quantifying dispersion in theelectronic based markets has yield mixed results. More recent researchhas documented near zero dispersion in the electronic markets usingtransaction prices. This paper is one of only a handful of papers toexamine the impact of internet on price dispersion using contemporaneousonline and offline transaction data for airline ticket prices. The paperfinds strong empirical evidence of lower dispersion in the electronicmarkets compared to the traditional markets, but fails to find evidenceof near zero dispersion in the electronic markets, even with transactionprices. The results suggest that electronic markets exhibitssignificantly lower but positive dispersion, in contrary to the nearzero dispersion as found in more recent empirical literature.