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Research Note ---Online Price Dispersion: A Game-Theoretic Perspective and Empirical Evidence

Author

Listed:
  • Sulin Ba

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • Jan Stallaert

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

  • Zhongju Zhang

    (School of Business, University of Connecticut, Storrs, Connecticut 06269)

Abstract

The existence and persistence of price dispersion for identical products in online markets have been well-documented in the literature. Possible explanations of this price dispersion, derived mainly using hedonic price models, have seen only modest success. In this paper, we propose a competitive model based on online retailers' differentiation mainly in service provided and recognition enjoyed to explain price dispersion. Our exploratory empirical analyses, using cross-sectional data, demonstrate that the competitive model provides a better explanation of the association between prices and online retailers' service and recognition levels. In addition, our competitive model is able to explain observations that are seemingly inconsistent with the hedonic model such as the negative association between service and price. This paper contributes to the literature on price dispersion by offering a differentiation model that provides a good fit with data and by proposing a theory that explains previous counterintuitive observations of prices. Our model also helps an e-tailer to choose a desirable position in the competitive market.

Suggested Citation

  • Sulin Ba & Jan Stallaert & Zhongju Zhang, 2012. "Research Note ---Online Price Dispersion: A Game-Theoretic Perspective and Empirical Evidence," Information Systems Research, INFORMS, vol. 23(2), pages 575-592, June.
    • Handle: RePEc:inm:orisre:v:23:y:2012:i:2:p:575-592
    DOI: 10.1287/isre.1110.0353
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    References listed on IDEAS

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    Cited by:

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    3. Hsing Kenneth Cheng & Zhi Li & Andy Naranjo, 2016. "Research Note—Cloud Computing Spot Pricing Dynamics: Latency and Limits to Arbitrage," Information Systems Research, INFORMS, vol. 27(1), pages 145-165, March.
    4. Yang Liu & Juan Feng & Xiuwu Liao, 2017. "When Online Reviews Meet Sales Volume Information: Is More or Accurate Information Always Better?," Information Systems Research, INFORMS, vol. 28(4), pages 723-743, December.

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