Online Pricing and Auctions

Introduction

Markets (electronic or otherwise) have three main functions: matching buyers and sellers; facilitating the exchange of information, goods, services and payments associated with market transactions; and providing an institutional infrastructure, such as a legal and regulatory framework, that enables the efficient functioning of the market (Bakos, 1998). As the internet reaches every aspect of our lives, many traditional retailers find that the internet is a new channel for selling their goods (Tang & Gan, 2004). E-Business companies are currently grappling with the complex task of determining the right prices to charge a customer for a product or a service (Narahari, Raju, Ravikumar, & Shah, 2005).

Bakos (1998) suggested that a key function of markets in new economic system is price discovery, which is the process of determining the prices at which demand and supply “clear” and trade occurs. For financial markets, price discovery is their primary function. Similar to the financial markets, electronic businesses enable new types of price discovery to be employed in different markets. For instance, online reservation systems of hotels can provide price-sensitive customers to lock-in a price for future services, airlines auction last-minute unsold seats to the highest bidders, and ebay.com, predominantly characterized as a person-to-person auction site as it provides a market place for individual buyers and sellers to trade online may be given (Bakos, 1998; Brint, 2003).

The scope of this chapter is a review of literature related with online pricing and its effect on both consumers and businesses. Thus it highlights the contemporary internet pricing issues by providing a critique review of miscellaneous studies related with dynamic pricing such as online pricing and auctions.

Pricing And Traditional Pricing Strategies

Price can be defined as the total resources expanded by a buyer or lessee in acquiring a given good or service. Price in a transaction consists both of what the buyer explicitly pays the seller in exchange for a specified good or service and, in that for many people time and effort have a cost equivalent, also the resources expanded by the buyer in terms of purchase time, travel effort and other associated tasks and inconveniences (Narver & Savitt, 1971).

Kotler and Armstrong (2014, p. 312) define price in the narrowest sense as “the amount of money charged for a product or service”, and in the more broadly, “price is the sum of all the values that customers give up to gain the benefits of having or using the product or service”.

This essential role of price in commerce is sometimes disguised by the use of traditional terms. If the product in the commercial exchange is a good, then the product’s price will most likely be called “price.” (Schindler, 2012). The other terms used to mean price is listed in Table 1.

Source: Schindler, 2012, p. 3