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Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market

Author

Listed:
  • Michael R. Baye

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • John Morgan

    (University of California at Berkeley)

  • Patrick Scholten

    (Bentley College)

Abstract

Economic theory indicates that E-retailers competing at price comparison sites, such as Shopper.com, must charge prices that cannot be systematically predicted by their rivals. Consistent with theory, we find significant variation in the identity of the lowprice firm as well as the level of the lowest price for 36 of the best-selling consumer electronics products sold at Shopper.com between November 1999 and May 2001. The observed pricing patterns can be explained by firms engaging in short-term price promotions in an attempt to avoid the deleterious outcome associated with price competition. Based on our arguments and the evidence presented, the managerial implications are clear: Strategic unpredictability in prices—through the use of hit and run sales—is a widely used and effective weapon for avoiding all-out price competition in online markets.

Suggested Citation

  • Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    • Handle: RePEc:iuk:wpaper:2004-04
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    References listed on IDEAS

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    More about this item

    Keywords

    Temporal price dispersion; price comparison sites; e-retail; sales promotion;
    All these keywords.

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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