Price Dispersion on the Internet: A Further Review and Discussion

Price Dispersion on the Internet: A Further Review and Discussion

Fang-Fang Tang (Peking University, People’s Republic of China) and Xiaolin Xing (Fannie Mae, USA)
DOI: 10.4018/978-1-61520-611-7.ch005
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Abstract

The emergence and explosive growth of e-commerce have ushered in a new era of retail business, which has in turned triggered an increased research interest in studying online pricing behavior. Online retailing promises the potentials of low barrier of entry, easy access of information, and low transactions costs. These features of online retailing imply that the growth of e-commerce has the potential of realizing often stated economic ideals for a truly competitive market: low search costs, fierce price reactions, low margins, and weak market power. Such benefits might provide significant welfare benefits to consumers. Early studies in the literature mainly focused on comparing price levels and price dispersion between offline and online competitors (e.g. Bailey 1998, Brynjolffson & Smith 2000). As online markets become more mature and more data on e-tailing become available, empirical studies have shifted from analyzing cross-sectional data to longitudinally investigating market dynamics in terms of price levels and price dispersions. Since customers can obtain price information in online markets easily and inexpensively, it might be expected that online price dispersion should be small. However, empirical studies have found significant price differences and persistent price dispersions in the Internet markets, for which we are going to review in the following sections.
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Introduction

Pan, Ratchford and Shankar (2004) have extensively reviewed the existing literature on price dispersion research on the fast-growing Internet selling channel and also provided the profession with excellent insights on future research. However, their paper contains some critical points of misunderstanding on a field of research issues, and, even more importantly, such misunderstanding has been unfortunately widespread in the research community. Therefore, we feel a pressing urgency to clarify on these points and try to provide an additional review of other studies which were not included in this paper.

Key Terms in this Chapter

Australia Market: Online exchanges of goods by the Australian online retailers with customers for money in terms of Australian dollars.

South Korea Market: Online exchanges of goods by the South Korea online retailers with customers for money in terms of Won.

Online Pricing: Retailers set prices online.

Mainland China Market: Online exchanges of goods by the Mainland China online retailers with customers for money in terms of RMB Yuan.

US Market: Online exchanges of goods by the US online retailers with customers for money in terms of US dollars.

Online Retailing: Retailers sell goods online.

Price Dispersion: Price differences of online retailers for the same goods selling online.

Taiwan Market: Online exchanges of goods by the Taiwan online retailers with customers for money in terms of NTW Yuan.

Online Pricing Dynamics: Price movements of online retailers for the same goods

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