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Price Dispersion on the Internet: Good Firms and Bad Firms

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  • Kathy Baylis
  • Jeffrey Perloff

Abstract

Internet firms charge a wide range of prices for such homogeneous products, and high-priced firms remain high-priced and low-priced firms remain low-priced over long periods. One explanation is that high-price firms are charging a premium for superior service. An alternative explanation is that firms price discriminate across informed and uniformed consumers (Salop and Stiglitz 1977) or between serious shoppers and others (Wilde and Schwartz 1979). The pricing pattern for a digital camera and a flatbed scanner is consistent with the price-discrimination model and inconsistent with the service-premium story.

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Bibliographic Info

Article provided by Springer in its journal Review of Industrial Organization.

Volume (Year): 21 (2002)
Issue (Month): 3 (November)
Pages: 305-324

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Handle: RePEc:kap:revind:v:21:y:2002:i:3:p:305-324

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Web page: http://www.springerlink.com/link.asp?id=100336

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  1. Perloff, Jeffrey M & Salop, Steven, 1985. "Firm-specific information, product differentiation, and industry equilibrium," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series qt60v9q47r, Department of Agricultural & Resource Economics, UC Berkeley.
  2. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  3. Salop, Steven & Stiglitz, Joseph E, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 493-510, October.
  4. Wilde, Louis L & Schwartz, Alan, 1979. "Equilibrium Comparison Shopping," Review of Economic Studies, Wiley Blackwell, vol. 46(3), pages 543-53, July.
  5. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
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  9. Stokey, Nancy L, 1979. "Intertemporal Price Discrimination," The Quarterly Journal of Economics, MIT Press, vol. 93(3), pages 355-71, August.
  10. Salop, S & Stiglitz, J E, 1982. "The Theory of Sales: A Simple Model of Equilibrium Price Dispersion with Identical Agents," American Economic Review, American Economic Association, vol. 72(5), pages 1121-30, December.
  11. Nancy L. Stokey, 1981. "Rational Expectations and Durable Goods Pricing," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 112-128, Spring.
  12. Arnold, Michael A, 2000. "Costly Search, Capacity Constraints, and Bertrand Equilibrium Price Dispersion," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 41(1), pages 117-31, February.
  13. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
  14. David, Douglas D & Holt, Charles A, 1996. "Consumer Search Costs and Market Performance," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 133-51, January.
  15. Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
  16. Conlisk, John & Gerstner, Eitan & Sobel, Joel, 1984. "Cyclic Pricing by a Durable Goods Monopolist," The Quarterly Journal of Economics, MIT Press, vol. 99(3), pages 489-505, August.
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