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Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market

Author

Listed:
  • 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.

Suggested Citation

  • Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market," Working Papers 2004-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2004-04
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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2004-04-baye-morgan-scholten.pdf
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    References listed on IDEAS

    as
    1. Michael R. Baye & John Morgan & Patrick Scholten, 2004. "Price Dispersion In The Small And In The Large: Evidence From An Internet Price Comparison Site," Journal of Industrial Economics, Wiley Blackwell, vol. 52(4), pages 463-496, December.
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    12. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Esteves, Rosa-Branca, 2010. "Pricing with customer recognition," International Journal of Industrial Organization, Elsevier, vol. 28(6), pages 669-681, November.
    2. Moreno-Izquierdo, L. & Ramón-Rodríguez, A. & Perles Ribes, J., 2015. "The impact of the internet on the pricing strategies of the European low cost airlines," European Journal of Operational Research, Elsevier, vol. 246(2), pages 651-660.
    3. Michael R. Baye & John Morgan, 2009. "Brand and Price Advertising in Online Markets," Management Science, INFORMS, vol. 55(7), pages 1139-1151, July.
    4. 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.
    5. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2009. "Clicks, Discontinuities, and Firm Demand Online," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 935-975, December.
    6. repec:kap:qmktec:v:15:y:2017:i:2:d:10.1007_s11129-017-9182-0 is not listed on IDEAS
    7. 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.
    8. 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.
    9. 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.
    10. 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.
    11. repec:rss:jnljms:v6i4p4 is not listed on IDEAS
    12. 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;The Industrial Organization Society, vol. 42(1), pages 1-23, February.
    13. 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.
    14. Michael R. Baye & John Morgan, 2005. "Probabilistic Patents," Microeconomics 0504004, EconWPA.
    15. repec:eee:touman:v:41:y:2014:i:c:p:28-42 is not listed on IDEAS
    16. Baye, Michael & GATTI, RUPERT J & Kattuman, Paul & Morgan, John, 2004. "Estimating Firm-Level Demand at a Price Comparison Site: Accounting for Shoppers and the Number of Competitors," Competition Policy Center, Working Paper Series qt923692d1, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
    17. 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.
    18. Hyun S. Shin & Dominique M. Hanssens & Kyoo il Kim, 2016. "The role of online buzz for leader versus challenger brands: the case of the MP3 player market," Electronic Commerce Research, Springer, vol. 16(4), pages 503-528, December.

    More about this item

    Keywords

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

    JEL classification:

    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • M3 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising

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