Market Power of e-Commerce Platforms: Price Competition in Consumables

Abstract

It is revealed that e-commerce marketplaces have market power, whereby the prices they offer are far higher than prices offered by physical retail stores. There is a general belief that goods purchased online are cheaper. This paper examines whether such a belief is valid. According to the characteristics of the consumables market, which could be deemed as monopolistic competition, price differences for the same products in different channels should be insignificant due to their high substitutability. Consumables are selected as representatives in this paper’s samples. By collecting 10,080 records of prices and shipping costs from 21 items in seven categories of consumables from the two most popular e-commerce platforms in Thailand – Lazada and Shopee – as well as modern-trade retailers, it is discovered that online prices of those consumables are notably different from their respective retail prices in modern-trade retailers. The results reveal that consumables purchased through e-commerce platforms are different from their respective retail prices, being both higher and lower, although it is possible for consumers to find cheaper prices on such platforms. Taking into account shipping costs, prices that include shipping are significantly higher than prices in retail stores. Moreover, shipping costs are different across platforms. Therefore, such belief is just a myth rather than a fact. It is also found that e-commerce platforms have market power through their abilities to control (1) product visibility (only 14.54 percent of 10,080 samples [or only 1,466 samples] matched the sample products), (2) shipping costs, and (3) consumers’ usage of platforms’ dedicated online applications (applications allow consumers to find cheaper products). Thus, it is imperative to devise suitable regulations on e-commerce platforms. Our findings may support the direction of such regulations in the future.