If you think online prices are cheaper than offline, think again

Technically Incorrect: An MIT professor conducts a worldwide analysis of prices online and off. The results might surprise some.

Chris Matyszczyk
3 min read

Technically Incorrect offers a slightly twisted take on the tech that's taken over our lives.


Think it's cheaper? It likely isn't.

Jamie Grill/Blend Images/Corbis

Amazon has educated me in so many ways.

It's taught me that the "Lord of the Flies" was an excellent management book.

It's also taught me to believe that online prices are cheaper than those in stores.

But are they? MIT Sloan School of Management professor Alberto Cavallo thought he'd test that theory out.

As well as using robots for the online part, he crowdsourced 370 people to scan bar codes and collect prices for a random set of 10 t0 50 products in physical stores. In total, about 24,000 prices were analyzed.

The study, published last month, covered online and offline prices in 56 large multi-channel retailers in 10 different countries. Those are retailers that offer both online and brick and mortar store sales. Cavallo focused on these types of stores because they still constitute the majority of retail transactions.

Amazon and eBay weren't part of the research because, in addition to not having physical stores, they still constitute a relatively minor proportion of retails transactions in most countries.

Using an app created by MIT, he then compared the prices of the same products.

What he found was that in 72 percent of cases, the prices were the same. Indeed, one area where the channel made little difference was electronics.

"This is likely because customers can see the price of a TV at each store location and online so it would be hard to explain any price differences," Cavallo reasoned. "As a result, someone living in a remote location -- where transportation costs may be higher -- pays about the same price as someone living in a large city."

Cavallo said in a press release that the results surprised many people.

"There is a general belief that online prices are different, but no agreement on exactly how they differ," he said.

In Brazil, for example, online prices are often much higher, which Cavallo puts down to a belief that online buyers tend to be wealthier. The UK and Canada both had a 91 percent rate of online and offline prices being the same.

In Japan, however, online prices were significantly lower in 45 percent of cases. The US was the closest to the average, at 69 percent.

Online retail transactions still represent only 10 percent of all US transactions. (Worldwide, the figure is around 5 percent.) In his research, Cavallo observed that retailers don't appear to be manipulating prices with respect to IP address location or any other factor.

Ultimately, he believes his work will allow economists to use online pricing much more in their calculations. He also thinks that consumers should focus far more on aspects other than price when making their decision as to whether to purchase online or in-store.

But leaving Amazon out seems a shame. As it creeps into more and more areas of business, I find myself using the site increasingly as my first stop when buying a wide variety of products.

It might not represent much proportionately now, but it surely represents a very powerful future.

It's easy to believe that technology always makes things cheaper, as well as easier.

Cavallo's work seems to suggest that only the latter is the case. And even then, sometimes the website won't work or won't load fast enough, sometimes your basket won't load and sometimes inserting your name, address and credit card details can be burdensome.

You wouldn't believe the number of times I misspell "Matyszczyk."