Image Effects and Rational Inattention in Internet-Based Selling

Abstract

The frequency of occurrence of certain price points in Internet-based selling is investigated in order to determine what drives the observed regularities and variations. Theories based on consumer perceptions of price and quality images, and on rational inattention to price-endings are explored by specifying and testing empirical models for price-endings using more than 1.5 million daily observations on multiple product categories sold by 90 Internet-based retailers collected over a two-year period. The results show that a fi rm's on-line reputation and relative price levels affect the price-endings chosen in different product categories, and that 9-ending prices increase consumer purchases. These fi ndings support an image theory of store quality and price. The use of 9-ending prices varies across Internet selling formats in a way consistent with differences in the rational attentiveness these channels engender in consumers. This research on the role of information technology in price-setting provides insights for marketers who wish to optimize price-setting decisions in the competitive environment of Internet retailing.

A Multi-Level Theory Approach to Understanding Price Rigidity in Internet Retailing

“…Price rigidity may occur due to rational inattention on the part of consumers. Rational inattention theory posits that it may be rational for consumers to be inattentive to the rightmost digit or digits in a price because they are constrained by time, resources, and information processing capacity (Lee et al, 2009;Sims, 2003). Since many consumers appear to ignore the last digit of the price, firms have an incentive to make it as high as possible at $9 or 9¢ (Basu, 1997).…”

“…So, processing price information is much less costly on the Internet. With the use of the Internet as a new channel, and the existence of shopbots that allow consumers to see different prices side-by-side by price rank, consumers' search costs are tremendously reduced (Bakos, 1997;Lee et al, 2009;Varian, 2000). Shopbots and search engines provide a basis for consumers to be able to give greater attention to price.…”

“…We are thinking about firms moving beyond 9-ending prices, since there is not much opportunity for a firm to distinguish itself with consumers if all the prices delivered by shopbots end in 99¢. So now we see prices ending in 76¢, 88¢, 43¢, and so on at Wal-Mart's online sites, among others, as well as to-the-dollar pricing (Lee et al, 2009). This seems to be a firm-specific technology capability-driven choice, since Wal-Mart is undoubtedly exploiting the advantages that search engines can give when the company implements non-9-ending prices.…”

The importance of trusting beliefs linked to the corporate website for diffusion of recruiting-related online innovations

“…Corporate websites are one of the most used sources to attract employees. Data show that all Fortune 100 companies and 94% of all global companies use their websites for recruiting [25,39,42]. Although the literature has offered descriptive evidence to suggest the importance of reinforcing this process using marketing tools [42] or a perspective of human resource management [49], previous works have failed to provide a model and evidence to explain how these things influence online users whose willingness to work in the firm may be increased [42].…”

“…First, we pay extra attention to the trusting beliefs extending the traditionally used TRA and technology acceptance model (TAM) models for the analysis of innovations acceptance. Second, while the vast majority of previous works, analyzing how trusting beliefs influence on online adaptations, have been focused on the trust of online buyers [6,30,31,36,39,60], other literature has highlighted the importance of understanding the trust of agents who do not purchase online a firm's products or services [17]. These agents are particularly important because the vast majority of online users are merely retrieving information rather than making purchases [7].…”