Effects of e-commerce on prices and business competition

Abstract

This article describes the boom of recent years in e-commerce in Spain, which reached a 14% share of sales in 2016, similar to the euro area average. The COVID-19 pandemic may have accelerated this trend, with some authors indicating a 6 pp increase in the share of sales during March of this year to over 20%. This article reviews the academic literature analysing potential price differences for the same product depending on whether it is sold in a traditional establishment or through a digital platform. The papers assessed do not observe significant price differences between the two markets. They also show that online markets display some of the same characteristics that are observed in traditional markets, such as a low frequency of price changes and high price dispersion for the same product sold in different online points of sale. Lastly, it is estimated that the development of e-commerce has nurtured business competition in Spain, reducing mark-ups. However, there is no evidence that corporate profits have been affected, which may reflect lower fixed costs associated with the sourcing of certain inputs for digital channels.