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Internet Shopping Agents: Virtual Co-Location and Competition

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  • Ganesh Iyer

    ()
    (Haas School of Business, University of California at Berkeley, Berkeley, California 94720-1900)

  • Amit Pazgal

    ()
    (John M.Olin School of Business, Washington University, St.Louis, Missouri 63130-4899)

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    Abstract

    Internet Shopping Agents (ISAs) allow consumers to costlessly search many online retailers and buy at the lowest price. One would expect these ISAs to subject sellers to intense price competition that results in uniform low prices. Yet, Internet retailers have joined these ISAs. Furthermore, the prices charged by inside retailers can vary substantially. We examine the impact of ISAs on market competition. An ISA creates differentiation in the pricing strategies of ex-ante identical retailers: Some retailers join the ISA due to mass of consumers that they can potentially win, while others stay out and extract surplus from their loyal consumers, while others stay our and extract surplus from their loyal consumers. The equilibrium inside pricing is such that the average price charged can increase or decrease when more retailers join, depending on whether or not the reach of the ISA is independent of the number of joining retailers. When the reach is endogenous, there exist a unique number of inside retailers.

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    File URL: http://dx.doi.org/10.1287/mksc.22.1.85.12842
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    Bibliographic Info

    Article provided by INFORMS in its journal Marketing Science.

    Volume (Year): 22 (2003)
    Issue (Month): 1 (November)
    Pages: 85-106

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    Handle: RePEc:inm:ormksc:v:22:y:2003:i:1:p:85-106

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    Related research

    Keywords: consumer search; comparison shopping; shopping agents; internet intermediaries; internet retailing; game theory; electronic commerce;

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    Cited by:
    1. Florian Zettelmeyer & Fiona Scott Morton & Jorge Silva-Risso, 2001. "Cowboys or Cowards: Why are Internet Car Prices Lower?," NBER Working Papers 8667, National Bureau of Economic Research, Inc.
    2. Paul, BELLEFLAMME & Pierre, PICARD, 2005. "Piracy and competition," Discussion Papers (ECON - Département des Sciences Economiques) 2005057, Université catholique de Louvain, Département des Sciences Economiques.
    3. Yongmin Chen & Chuan He, 2006. "Paid Placement: Advertising and Search on the Internet," Working Papers 06-02, NET Institute, revised Sep 2006.
    4. Neeraj Arora & Xavier Dreze & Anindya Ghose & James Hess & Raghuram Iyengar & Bing Jing & Yogesh Joshi & V. Kumar & Nicholas Lurie & Scott Neslin & S. Sajeesh & Meng Su & Niladri Syam & Jacquelyn Thom, 2008. "Putting one-to-one marketing to work: Personalization, customization, and choice," Marketing Letters, Springer, vol. 19(3), pages 305-321, December.
    5. Kocas, Cenk & Kiyak, Tunga, 2006. "Theory and evidence on pricing by asymmetric oligopolies," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 83-105, January.
    6. Yuanzhu Lu & Xiaolin Xing & Fang-Fang Tang, 2008. "Retailers' Incentive to Sell through a New Selling Channel and Pricing Behavior in a Multi-channel Environment," Annals of Economics and Finance, Society for AEF, vol. 9(2), pages 315-343, November.
    7. Dixit, Ashutosh & Whipple, Thomas W. & Zinkhan, George M. & Gailey, Edward, 2008. "A taxonomy of information technology-enhanced pricing strategies," Journal of Business Research, Elsevier, vol. 61(4), pages 275-283, April.
    8. Kukar-Kinney, Monika & Grewal, Dhruv, 2006. "Consumer willingness to claim a price-matching refund: A look into the process," Journal of Business Research, Elsevier, vol. 59(1), pages 11-18, January.
    9. Sullivan, Ursula Y. & Thomas, Jacquelyn S., 2004. "Customer Migration: An Empirical Investigation across Multiple Channels," Working Papers 04-0112, University of Illinois at Urbana-Champaign, College of Business.
    10. Emin M. Dinlersoz & Pedro Pereira, 2006. "On the Diffusion of Electronic Commerce," Working Papers 13, Portuguese Competition Authority.
    11. Morgan, John & Orzen, Henrik & Sefton, Martin, 2006. "An experimental study of price dispersion," Games and Economic Behavior, Elsevier, vol. 54(1), pages 134-158, January.
    12. Andreas Nicklisch, 2012. "Does collusive advertising facilitate collusive pricing? Evidence from experimental duopolies," European Journal of Law and Economics, Springer, vol. 34(3), pages 515-532, December.
    13. Bing Jing, 2007. "Product differentiation under imperfect information: When does offering a lower quality pay?," Quantitative Marketing and Economics, Springer, vol. 5(1), pages 35-61, March.
    14. Tang, Zhulei & Smith, Michael D. & Montgomery, Alan, 2010. "The impact of shopbot use on prices and price dispersion: Evidence from online book retailing," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 579-590, November.
    15. Michelle Haynes & Steve Thompson, 2013. "Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site," Review of Industrial Organization, Springer, vol. 42(1), pages 1-23, February.
    16. Harriet Gamper, 2012. "How Can Internet Comparison Sites Work Optimally for Consumers?," Journal of Consumer Policy, Springer, vol. 35(3), pages 333-353, September.

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