Abstract
This manuscript per the author provides a broad survey of recent literature on online price dispersion in the fields of economics, information system, and marketing, and offers a number of explanations documented in various electronic retailing markets from both the demand and supply sides, such as branding/reputation, market competition, consumer heterogeneity, dynamic pricing, and oligopoly strategies, to name a few. In addition, it also discusses several potential directions for future research in this area.
TopBackground
The Internet provides an ideal setting for empirical studies with abundance of data.3 In this section, I review research on retailer prices on the Internet. In general, we may sort e-retailers into two categories: web-based e-retailers (Dotcoms), such as eBay and Amazon, who exclusively conduct their business on the Internet and have no physical presence,4 and multi-channel retailers (MCR), such as Best Buy’s online branch, which is an extension of the brick-and-mortar establishment.
Early studies usually compare online and offline prices on books, CDs, and DVDs sold in the U.S. (Bailey, 1998; Brynjolfsson & Smith, 2000) as these commodities were among the first available on the Internet. Gradually, the empirical literature expands to include a wide variety of products such as airfares (Clemons et al., 2002; Chen, 2006; Chellappa et al., 2011), automobiles (Zettelmeyer et al., 2006), pharmaceuticals (Stylianou et al., 2005), service supply products (Ghose & Yao, 2011), consumer electronics (Baye et al., 2004a, 2004b; Xing et al., 2004), groceries (Gan et al., 2007), and hotel rooms (Delos Santos et al., 2011), to name a few.
Recent studies also include international data. For example, Liu and Tang (2005) study the Chinese book market, Li et al. (2009) study the Australian DVD market, Mizuno et al. (2010) electronics in Japan, Koppius et al. (2004) Dutch flower auctions; Englmaier and Schmoller (2011) football game auctions at HATTRICK, U.K., Zhong and Ong (2011) prepaid phone cards at Taobao.com, China, and Richards et al. (2016) online groceries in U.K., to name a few.
The empirical literature often compares prices and price dispersion between online and brick-and-mortar sellers, and between Dotcoms and MCRs. While most have found lower online than offline prices and lower Dotcoms than MCR prices, there seems no general consensus regarding the level of dispersion across different distribution channels or types of e-retailers. However, it is clear that persistent price dispersion remains on the Internet.
Key Terms in this Chapter
The Marketplace Fairness Act: A pending proposed legislation requires e-retailers to collect sales tax regardless of physical location.
Price discrimination: Firms charge different prices to different consumers for an identical product.
Multichannel Retailers: Retailers conduct businesses through multiple distribution channels.
Load Factor: Or passenger load factor, is often used by airlines to measure capacity utilization of their fleets.
Shopbot: A useful online search tool helps shoppers collect product information.
Integrated Shopping: E-retailers establish physical stores as a way to enhance shopping experience of their customers.
Price Dispersion: In a homogeneous product market, prices charged by different sellers are different.
Price Partitioning: Retailers divide the total product price into different components – a base price and surcharges including shipping and handling, taxes, and other fees.