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Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market

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  • 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.

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File URL: http://www.bus.indiana.edu/riharbau/RePEc/iuk/wpaper/bepp2004-04-baye-morgan-scholten.pdf
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Bibliographic Info

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.

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Date of creation: 2004
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Publication status: Published in Journal of Interactive Marketing, 2004
Handle: RePEc:iuk:wpaper:2004-04

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Related research

Keywords: Temporal price dispersion; price comparison sites; e-retail; sales promotion;

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References

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  3. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion in the Small and in the Large: Evidence from an Internet Price Comparison Site," Working Papers 2004-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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Citations

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Cited by:
  1. Baye, Michael R & Gatti, J. Rupert J & Kattuman, Paul & Morgan, John, 2006. "Clicks, Discontinuities, and Firm Demand Online," Competition Policy Center, Working Paper Series qt3qg7270w, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  2. Glenn Ellison & Sara Fisher Ellison, 2005. "Lessons About Markets from the Internet," Journal of Economic Perspectives, American Economic Association, vol. 19(2), pages 139-158, Spring.
  3. Rosa Branca Esteves, 2007. "Pricing with Customer Recognition," NIPE Working Papers 27/2007, NIPE - Universidade do Minho.
  4. 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.
  5. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2005. "Estimating Firm-Level Demand at a Price Comparison Site: Accounting for Shoppers and the Number of Competitors," Microeconomics 0504005, EconWPA.
  6. Takayuki Mizuno & Tsutomu Watanabe, 2013. "Why are product prices in online markets not converging?," CIGS Working Paper Series 13-001E, The Canon Institute for Global Studies.
  7. Michelle Haynes & Steve Thompson, 2013. "Entry and Exit Behavior in the Absence of Sunk Costs: Evidence from a Price Comparison Site," Review of Industrial Organization, Springer, vol. 42(1), pages 1-23, February.
  8. 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.
  9. Claudio A. Piga & Enrico Bachis, 2006. "Pricing strategies by European traditional and low cost airlines. Or, when is it the best time to book on line?," Discussion Paper Series 2006_14, Department of Economics, Loughborough University, revised Jul 2006.
  10. Takayuki Mizuno & Tsutomu Watanabe, 2013. "Why are product prices in online markets not converging?," CARF F-Series CARF-F-314, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  11. Michael R. Baye & John Morgan, 2005. "Probabilistic Patents," Microeconomics 0504004, EconWPA.
  12. Takayuki Mizuno & Tsutomu Watanabe, 2013. "Why are product prices in online markets not converging?," UTokyo Price Project Working Paper Series 007, University of Tokyo, Graduate School of Economics.
  13. García Díaz, Antón & Hernán González, Roberto & Kujal, Praveen, 2009. "List pricing and discounting in a Bertrand-Edgeworth duopoly," International Journal of Industrial Organization, Elsevier, vol. 27(6), pages 719-727, November.

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