What we do (and don’t) know about online pricing: Evidence from e-commerce in the grocery sector

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Digitalization is an inevitable feature of a rapidly evolving globalized world. Its spillovers influence all areas of our lives, including our everyday shopping experience. Digitalization has already introduced huge changes to the traditional retailing sector in Germany. About 20% of all electronic, media and leisure products are bought online. The share of e-commerce in food retailing is forecast to increase up to 30% of total retailing revenue already by 2020. Using digital channels to reach their customers became a matter of competitiveness for conventional retailers, who have already started embracing digitalization by becoming multichannel. On the Internet, however, these retailers face strong rivalry from large international players, who already gained consumers’ trust and loyalty in the non-food sector. This competition, coupled with lower search costs for consumers and diminishing price-adjustment costs for sellers online, leads to a transformation of traditional retailing and creates a new dynamic relation between online and offline retailers, especially in terms of their pricing strategies, which are in the focus of the project. Despite an increasing role of e-commerce in agri-food sector, very little is known about online pricing. This project intends to fill this gap in our knowledge about online markets and shed light on major issues of price setting in German grocery e-retailing including: (i) price level and price dispersion, (ii) price rigidity and factors that influence the probability, the size and the frequency of price adjustments, (iii) exchange rate pass-through to online prices, and (iv) spatial price setting.