Bargaining and posted prices: what does the Internet change ?

Michael Arnold () and Thierry Pénard

Economics Working Paper Archive (University of Rennes & University of Caen) from Center for Research in Economics and Management (CREM), University of Rennes, University of Caen and CNRS

Abstract: The Internet has introduced a variety of online buying services that expand the reach of sellers and reduce search costs for buyers. In markets in which traditional outlets tend to establish prices through bargaining, these online intermediaries have also altered the price setting process. Perhaps the most well known example is Autobytel.com which provides referral services in the automobile market. By using Autobytel, a buyer can obtain a posted price as an alternative to bargaining with a car dealer ship. To understand the effect of online referral systems on the price setting process, we construct a theoretical model of oligopolistic price competition in which one dealership has an exclusive contract with a referral intermediary. We show that posted prices offered through the referral system are not necessarily lower than offline prices (bargained prices). Our model provides theoretical insights relevant to results in the empirical literature addressing the role that Autobytel and other infomediaries play in online markets.

Keywords: online markets; e-commerce; intermediary; autobytel; pricing (search for similar items in EconPapers)
JEL-codes: D4 D83 L19 L89 (search for similar items in EconPapers)
Date: 2007
New Economics Papers: this item is included in nep-com, nep-ict, nep-mic and nep-net
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