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Researchers: Choppy Online Prices a Natural State

While other studies have shown that internet shopping has had a deflationary effect on prices generally, a new study shows that the lack of consistently low prices across the internet shows less the illiquidity of the market and more of the influence of companies gaming the expectations of both consumers and their competition. In effect, companies are deliberately using inconsistent pricing in order to prevent competition from systematically undercutting them. Many are also lowering prices in items that disproportionately give the impression that the brand tends to have low prices. Using game theory, researchers at Indiana University say they have shown that the bumpy price environment we see online today is likely here to stay, as it constitutes a rough equilibrium of companies making individually rational decisions, despite the uniformity of prices.

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