The consumer and the chamber of selective information : the upside of higher prices in online markets

Abstract

The emergence of online markets was initially expected to lower prices and reduce price dispersion. However, empirical evidence does not seem to support these expectations. In this article, we first propose a mechanism that can explain these findings: selective information - arising from filter bubbles or echo chambers - may lead to increased price dispersion and higher average prices. Second, we show that these higher prices are not necessarily a cause for concern; in fact, the prevalence of filter bubbles may, somewhat surprisingly, have positive implications for overall welfare.