Prices and Price Dispersion on the Web: Evidence from the Online Book Industry

Abstract

Using data collected between August, 1999, and January, 2000, covering 399 books, we examine pricing by thirty‐two online United States‐based bookstores. At the aggregate level, we find that both advertising and competitive structure had the predicted effects. More competition led to lower prices and to lower price dispersion. Holding competitive structure constant, more widely advertised items also had lower prices. At the firm level, we observe considerable heterogeneity in behavior. Firms had differentiated (or attempted to differentiate) on dimensions such as brand, price, and selection.

A comparison of time-varying online price and price dispersion between multichannel and dotcom DVD retailers

“…In contrast, many other studies have found that online retailers tend to charge lower prices than traditional retailers (e.g., Brynjolffson & Smith, 2000;Chevalier & Goolsbee, 2003;Clay, Krishnan, & Wolff, 2001;Clemons, Hann, & Hitt, 2002;Smith & Brynjolfsson, 2001). For example, Brynjolfsson and Smith (2000) compared prices of books and CDs sold through the Internet and through conventional channels.…”

“…For example, Bailey (1998) found that online prices for books, CDs, and computer software were higher than those in conventional stores. Clay, Krishnan, and Wolff (2001) and Clay, Krishnan, Wolff, and Fernandes (2002) compared prices between online and physical stores and found that average prices were similar in both online and offline book markets. But taking sales tax and shipping cost into account, total prices were lower in conventional stores than in online stores.…”

“…Clay, Krishnan, and Wolff (2001) found that in the online book market, although some multichannel retailers set online prices very similar to their Dotcom rivals, others simply charged the same prices as their land-based stores. Thus, there was a substantial price difference among multichannel retailers.…”

“…According to search theory, the low cost of online searching should result in low price dispersion in the Internet markets (e.g., Carlson & McAfee, 1983;Nelson, 1970;Pratt, Wise, & Zeckhauser, 1979;Stigler, 1961). However, empirical studies have revealed that although online search cost is low, many consumers may not be engaging in search (e.g., Clay, Krishnan, & Wolff, 2001). Reichheld and Schefter (2000) found that online shoppers were most likely to shop on a Web site that they knew and trusted.…”

“…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 (e.g., Ancarani & Shankar, 2004;Baye, Morgan, & Scholten, 2003;Chevalier & Goolsbee, 2003;Clay, Krishnan, & Wolff, 2001;Clemons, Hann, & Hitt, 2002;Pan, Ratchford, & Shankar, 2005;Smith & Brynjolfsson, 2001;Tang & Xing, 2001). With improved understanding of Internet markets, theoretical researchers in the field have attempted to explore the reasons for price differences and persistent price dispersion among online retailers (e.g., Baye & Morgan, 2001;Cattani, Gilland, & Swaminathan, 2002;Chen & Hitt, 2003;Iyer & Pazgal, 2003;Lal & Sarvary, 1999;Zettelmeyer, 2002).…”