Online retailers use advertising more than traditional retailers to signal quality to consumers. The online book market shows imperfect price competition due to factors like product differentiation and incomplete consumer awareness. Consumers respond more to advertising and website spending than low prices. As the online book market grew from 1997-2001, advertising and sunk costs increased, leading to high market concentration. Price variations in individual books do not follow a consistent pattern, indicating imperfect price competition in the online book market.