Growing online competition is not only forcing retailers to hold prices constant across geographic regions, but it is also pushing companies to adjust their prices more frequently, according to new research.

When combined, those effects can make retail prices more sensitive to countrywide shocks in gasoline prices or import tariffs, according to a paper presented at the Federal Reserve's annual symposium last weekend.

What that could translate to is a new, more responsive retail sector that quickly passes costs such as oil spikes or tariffs on to consumers.

Much of the existing conversation devoted to the so-called Amazon effect has revolved around the downward pressure e-commerce has had on the price of consumer goods, but that focus may be short-sighted.

Instead, Harvard Business School's Alberto Cavallo studied how increased competition in the Amazon era affects firm pricing behavior, a result the academic characterized as far more enduring. That's because prices can only fall so far.

"Changes in the way these pricing decisions are made can have a much more persistent effect on inflation dynamics than a one-time reduction in markups," Cavallo wrote. "While potentially sizable, there is a limit to how much markups can fall. Will the Amazon Effects disappear when that limit is reached? Or are there longer-lasting effects of online competition on inflation dynamics?"

A number of Fed officials have wondered whether relatively low levels of inflation in recent years may be the result of companies such as Amazon stifling overall prices.

Source: U.S. Bureau of Economic Analysis, retrieved from FRED.

The central bank's preferred inflation gauge — the core personal consumption expenditures (PCE) price index — clinched the Fed's 2 percent target in March for the first time in six years. Many economists have remained puzzled at the relatively sluggish rate of price increases given the historic low levels of unemployment.

The researcher found the frequency of price changes by retailers that sell both online and in brick-and-mortar locations has increased significantly over the past decade. The average duration for regular price changes — barring temporary sales or one-time discounts — fell to 3.65 months from 2014 to 2017. From 2008 to 2010, it took 6.7 months.

The effect was accentuated in sectors where online retailers tend to have high market share, including electronics and household goods.

Cavallo also investigated how prices at Amazon, Walmart, Best Buy and Safeway vary across geographic locations. Since Amazon is entirely internet-based, its prices are the most uniform. More surprising, however, was that the other retailers exhibited almost as much uniformity as Amazon.

"Nearly all of the geographical price dispersion is concentrated in the Food and Beverages category," he added. "The transparency of the web imposes a constraint on brick-and-mortar retailers' ability to price discriminate across locations."

For monetary policymakers, Cavallo concludes that the paper's most important finding is that retail prices are becoming less "insulated" from common nationwide shocks. That could have important implications, he added, when lawmakers decide to introduce trade tariffs or other taxes.