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Pricing on the Internet

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  • Arup Daripa

    (Birkbeck, College, London)

  • Sandeep Kapur

    (Birkbeck College, London)

Abstract

It is frequently claimed that the growth of e-commerce has created a more competitive environment. It is argued that lower production costs of online retailers encourages new entry in previously concentrated sectors, and a marked reduction in search costs and switching costs increase the intensity of competition. The limited evidence that exists paints a more mixed picture. Many online markets tend to be advertising- intensive, creating a tendency towards concentration; search and price comparison are not perfect; firms can create product heterogeneity and raise switching costs to dampen price competition. Where firms have some market power, as in the market for information goods, we expect discriminatory pricing to become the norm. Apart from posted prices, the internet has extended the use of auctions, even to relatively low-value goods previously traded in thin local markets. The lowcost, relatively frictionless online auction markets have increased profits as well as economic efficiency, and may emerge as the principal pricing method for a large number of goods and services.

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Bibliographic Info

Paper provided by EconWPA in its series Microeconomics with number 0312007.

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Date of creation: 31 Dec 2003
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Handle: RePEc:wpa:wuwpmi:0312007

Note: Type of Document - pdf; prepared on win98; to print on a4;
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Keywords: internet; pricing; e-commerce;

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References

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Cited by:
  1. Gatti, J.R.J. & Kattuman, P., 2003. "Online Price Dispersion Within and Between Seven European Countries," Cambridge Working Papers in Economics 0343, Faculty of Economics, University of Cambridge.
  2. Just, David R. & Just, Richard E., 2005. "Distributional Implications of the Internet: Can Price Discrimination Improve Farmers’ Welfare?," Working Papers 127074, Cornell University, Department of Applied Economics and Management.

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