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)
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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.
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Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number
2004-04.
Length: Date of creation: 2004 Date of revision: Publication status: Published in Journal of Interactive Marketing, 2004 Handle: RePEc:iuk:wpaper:2004-04
Find related papers by JEL classification: L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets D4 - Microeconomics - - Market Structure and Pricing D8 - Microeconomics - - Information, Knowledge, and Uncertainty M3 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Varian, Hal R, 1980.
"A Model of Sales,"
American Economic Review,
American Economic Association, vol. 70(4), pages 651-59, September.
[Downloadable!] (restricted)
Cited by: (explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)
Michael R. Baye & John Morgan, 2005.
"Brand and Price Advertising in Online Markets,"
Working Papers
2005-08, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
[Downloadable!]
Other versions:
Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2006.
"Clicks, Discontinuities, and Firm Demand Online,"
Working Papers
2006-21, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
[Downloadable!]
Other versions:
Michael R. Baye & John Morgan & Patrick Scholten, 2006.
"Information, Search, and Price Dispersion,"
Working Papers
2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
[Downloadable!]