Online Market Resilience to Economic Shocks: Evidence Based on Price Dispersion from the COVID-19 Outbreak in China

We examine the effect of COVID-19 epidemic and the subsequent stay-at-home order on market efficiency in China's online markets. Through a comparison of price dispersion changes across online retail platforms around the lockdown date with the corresponding period in the 2019 lunar year-with the use of a unique and extensive online retail price dataset-we find a counterintuitive decrease in product price dispersion during the epidemic, which is contrary to conventional economic expectations during adverse events. Our study differentiates products by crisis-time demand elasticity-e.g., food versus clothing-and by online search intensity. This reveals that the lockdown and prolonged stay-at-home period facilitated online searches by consumers, which reduced information costs and enhanced market efficiency. The pandemic-induced decrease in price dispersion can be largely attributed to heightened online search activity: after we adjust for the intensity of search, the remaining pandemic effect on price dispersion becomes positive. China's resilient online market acted as a protective buffer during the COVID-19 crisis. The transition from offline to online markets and increased search activities bolstered online market functionality and mitigated the epidemic's repercussions.