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Automated Pricing Rules in Electronic Posted Offer Markets

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  • Cary A. Deck
  • Bart J. Wilson

Abstract

Internet markets are heralded as enhancing efficiency by providing buyers and sellers with an abundance of information. In these electronic markets, firms have the opportunity to employ "pricebots," computerized algorithms that automatically adjust prices to prevailing market conditions. This article uses laboratory methods to examine the potential market impact of the endogenous selection of three automated pricing algorithms: undercutting, low-price matching, and trigger pricing. We find that the undercutting algorithm leads to prices similar to the game-theoretic prediction. Low-price matching generates significantly higher prices, and trigger pricing results in market prices below the game-theoretic prediction. Copyright 2003, Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 41 (2003)
Issue (Month): 2 (April)
Pages: 208-223

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Handle: RePEc:oup:ecinqu:v:41:y:2003:i:2:p:208-223

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Cited by:
  1. José Apesteguía & Martin Dufwenberg & Reinhard Selten, 2003. "Blowing the Whistle," Documentos de Trabajo - Lan Gaiak Departamento de Economía - Universidad Pública de Navarra 0303, Departamento de Economía - Universidad Pública de Navarra, revised 2003.
  2. Subhasish Dugar & Todd Sorensen, 2006. "Hassle Costs, Price-Matching Guarantees and Price Competition: An Experiment," Review of Industrial Organization, Springer, vol. 28(4), pages 359-378, June.
  3. Deck, Cary & Gu, Jingping, 2012. "Price increasing competition? Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 84(3), pages 730-740.
  4. Henrik Orzen, 2006. "Counterintuitive Number Effects in Experimental Oligopolies," Discussion Papers 2006-22, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  5. Douglas D. Davis & Oleg Korenok, 2009. "Posted Offer Markets In Near-Continuous Time: An Experimental Investigation," Economic Inquiry, Western Economic Association International, vol. 47(3), pages 449-466, 07.
  6. Mago, Shakun Datta & Pate, Jennifer G., 2009. "An experimental examination of competitor-based price matching guarantees," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 342-360, May.
  7. Douglas Davis & Oleg Korenok & Robert Reilly, 2009. "Re-matching, information and sequencing effects in posted offer markets," Experimental Economics, Springer, vol. 12(1), pages 65-86, March.
  8. Enrique Fatas & Juan Mañez, 2007. "Are low-price promises collusion guarantees? An experimental test of price matching policies," Spanish Economic Review, Springer, vol. 9(1), pages 59-77, March.

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