Search and Price Dispersion in Online Grocery markets

•Most empirical studies of online price dispersion consider markets for single products in which the search process is simplified, whereas many retail products (food, for example) are purchased in more complex, multicategory, multiproduct environments. We examine the question of how search costs vary with the number of products available in a differentiated, multiproduct, online retail environment.•There is an unresolved debate regarding how search costs change with variety. If the cost of search is fixed, then average search costs fall with the number of products considered, and deeper markets should be more efficient. However, if search costs are variable in the sense that considering each product involves a unique process of examination and consideration, then search costs rise in the number of products available and variety may reduce the efficiency of a retail equilibrium.•We examine the effect of variety on search costs in an online shopping environment in which the only costs of search are ”mental” processing or pure search costs.•We compare empirical models of single- and multiple-product search equilibria and find that the data support the multi-product search alternative. With this model, we find that search costs fall in variety, so greater variety may have pro-competitive effects on market pricing.