Summary of More Amazon Effects

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According to US government data, almost 10% of total retail sales take place via e-commerce. Compared to traditional brick-and-mortar sellers, online vendors tend to adjust their pricing more frequently and set identical prices across geographies. This “Amazon effect” may be one driver of lower inflation levels in the US economy. Professor Alberto Cavallo scrutinizes the economics of the online sales environment and its ramifications on inflation. Although it could have been more succinct, this scholarly report will nonetheless reward analysts and policy experts who wish to explore the nuances of online pricing.

In this summary, you will learn

  • How online retailers differ from traditional outlets in their pricing models,
  • Why these behaviors create pricing compression and
  • What impact this has on inflationary pressures in the economy.

About the Author

Alberto Cavallo is an associate professor at Harvard Business School.



As e-commerce accelerates and seizes market share across retail categories, the competition between physical and online merchants is suppressing price markups. Experts suspect that this “Amazon effect” may help explain persistently low inflation rates in the US economy. However, as retailers’ margins continue to narrow, prices can fall only so far before sales become unprofitable. Researchers believe that other factors are at work, including online sellers’ price-setting activities. Specifically, e-commerce businesses deploy “a high degree of price flexibility” and “uniform pricing across locations.” Using a trove of data on retail pricing, analysts can assess how price flexibility and uniformity translate to the marketplace and ultimately to inflation metrics. 

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