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Pricing in a market without apparent horizontal differentiation: Evidence from web hosting services

  • Michael Thompson
  • Steve Thompson
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    This article explores pricing in a product lacking the conventional attributes of horizontal differentiation—physical location, design, color, etc.—and whose vertical characteristics are precisely specified and capable of rapid imitation. Web hosting exhibits low entry barriers, high turnover and low concentration. We use an electronically collected database covering over 17,500 US and UK product offerings, and find that after controlling for quality reputation and e-visibility characteristics exert a strong positive impact on price. This result from a heterogeneous B2B market, without horizontal differentiation, complements homogeneous B2C research elsewhere in suggesting that price disparities persist, even in ultra-competitive e-markets.

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    Article provided by Taylor & Francis Journals in its journal Economics of Innovation and New Technology.

    Volume (Year): 15 (2006)
    Issue (Month): 7 ()
    Pages: 649-663

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    Handle: RePEc:taf:ecinnt:v:15:y:2006:i:7:p:649-663
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    1. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    2. Glenn Ellison & Sara Fisher Ellison, 2009. "Search, Obfuscation, and Price Elasticities on the Internet," Econometrica, Econometric Society, vol. 77(2), pages 427-452, 03.
    3. Ernst R. Berndt & Robert S. Pindyck & Pierre Azoulay, 2000. "Consumption Externalities and Diffusion in Pharmaceutical Markets: Antiulcer Drugs," NBER Working Papers 7772, National Bureau of Economic Research, Inc.
    4. Clay, Karen & Krishnan, Ramayya & Wolff, Eric, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 521-39, December.
    5. Erik Brynjolfsson & Chris F. Kemerer, 1996. "Network Externalities in Microcomputer Software: An Econometric Analysis of the Spreadsheet Market," Management Science, INFORMS, vol. 42(12), pages 1627-1647, December.
    6. Vella, Francis & Verbeek, Marno, 1999. "Estimating and Interpreting Models with Endogenous Treatment Effects," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(4), pages 473-78, October.
    7. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 351-67, September.
    8. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
    9. Varian, Hal R, 1980. "A Model of Sales," American Economic Review, American Economic Association, vol. 70(4), pages 651-59, September.
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