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Follow the leader: price change timing in Internet-based selling

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  • Robert J. Kauffman

    (Arizona State University, Tempe, AZ, USA)

  • Charles A. Wood

    (Notre Dame University, Notre Dame, IN, USA)

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    Abstract

    Internet technologies should lessen information asymmetry, prompting competitive price reactions, but this does not seem to be happening in Internet-based selling. We study empirical regularities of price change timing for music CD vendors and booksellers to assess several theoretical explanations. Our sample includes 123, 680 daily prices for 169 products and 53 firms. Bertrand competition is insufficient to explain our observation that sellers do not shift prices this way. Tacitly collusive responses to competitors' price changes are observed rather than price changes solely in response to demand or cost shifts as would be expected with Bertrand competition. We find evidence of business rules for strategic pricing associated with tacitly collusive pricing and Edgeworth competition. Copyright © 2007 John Wiley & Sons, Ltd.

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    File URL: http://hdl.handle.net/10.1002/mde.1375
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    Bibliographic Info

    Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

    Volume (Year): 28 (2007)
    Issue (Month): 7 ()
    Pages: 679-700

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    Handle: RePEc:wly:mgtdec:v:28:y:2007:i:7:p:679-700

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    Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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    Cited by:
    1. Daniel Levy, 2006. "Price Rigidity and Flexibility: New Empirical Evidence," Emory Economics 0611, Department of Economics, Emory University (Atlanta).
    2. Rajesh Chakrabarti & Barry Scholnick, 2007. "The mechanics of price adjustment: new evidence on the (un)importance of menu costs," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 28(7), pages 657-668.

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