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Temporal Price Dispersion: Evidence from an Online Consumer Electronics Market

Michael Baye, John Morgan and Patrick Scholten
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Patrick Scholten: Bentley College

No 2004-04, Working Papers from Indiana University, Kelley School of Business, Department of Business Economics and Public Policy

Abstract: Economic theory indicates that E-retailers competing at price comparison sites, such as Shopper.com, must charge prices that cannot be systematically predicted by their rivals. Consistent with theory, we find significant variation in the identity of the lowprice firm as well as the level of the lowest price for 36 of the best-selling consumer electronics products sold at Shopper.com between November 1999 and May 2001. The observed pricing patterns can be explained by firms engaging in short-term price promotions in an attempt to avoid the deleterious outcome associated with price competition. Based on our arguments and the evidence presented, the managerial implications are clear: Strategic unpredictability in prices—through the use of hit and run sales—is a widely used and effective weapon for avoiding all-out price competition in online markets.

Keywords: Temporal price dispersion; price comparison sites; e-retail; sales promotion (search for similar items in EconPapers)
JEL-codes: D4 D8 L13 M3 (search for similar items in EconPapers)
Date: 2004
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Published in Journal of Interactive Marketing, 2004

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