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An Analysis of Pricing Strategy and Price Dispersion on the Internet

Author

Listed:
  • Randy A. Nelson

    (Colby College)

  • Richard Cohen

    (Buckingham Properties)

  • Frederik Roy Rasmussen

    (Harvard Business School)

Abstract

Using prices obtained from shopbots, we test several hypotheses regarding the economics of information and optimal search. We find that price dispersion is positively (negatively) related to product price and the number of sellers in cross-sectional (time series) analysis. Price dispersion increases over time when the sample includes new entrants, but decreases in the absence of entry. Controlling for shipping charges and seller heterogeneity reduces, but does not eliminate, price dispersion. Finally, prices appear to be correlated across products and over time – low price sellers for one product (time period) generally charge low prices for all items (time periods).

Suggested Citation

  • Randy A. Nelson & Richard Cohen & Frederik Roy Rasmussen, 2007. "An Analysis of Pricing Strategy and Price Dispersion on the Internet," Eastern Economic Journal, Eastern Economic Association, vol. 33(1), pages 95-110, Winter.
  • Handle: RePEc:eej:eeconj:v:33:y:2007:i:1:p:95-110
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    File URL: http://web.holycross.edu/RePEc/eej/Archive/Volume33/V33N1P95_110.pdf
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    References listed on IDEAS

    as
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    Cited by:

    1. Lesley Chiou & Jennifer Pate, 2010. "Internet Auctions and Frictionless Commerce: Evidence from the Retail Gift Card Market," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 36(3), pages 295-304, May.
    2. Tomasz Stanisław Szopiński & Robert Nowacki, 2014. "Plane Ticket Price Dispersion in the Online Selling System in Poland," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 8(2), June.
    3. David J. DiRusso, 2015. "Overcoming the Barriers of International Chinese Direct to Consumer E-commerce: The Case of Ali Express," International Journal of Management Sciences, Research Academy of Social Sciences, vol. 6(4), pages 196-203.
    4. Tomasz Galewski, 2015. "Problems in measuring price dispersion in e-commerce," Working Papers 50/2015, Institute of Economic Research, revised Apr 2015.
    5. Jiří Sedláček, 2013. "Price Dispersion on the Internet: Empirical Comparison of Several Commodities from the Czech Republic," Central European Business Review, Prague University of Economics and Business, vol. 2013(1), pages 35-42.
    6. Tomasz Stanisław Szopiński & Robert Nowacki, 2015. "The Influence of Purchase Date and Flight Duration over the Dispersion of Airline Ticket Prices," Contemporary Economics, University of Economics and Human Sciences in Warsaw., vol. 9(3), September.

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