More Amazon Effects

Alberto Cavallo, Harvard Business School

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.