Online price dispersion: A game-theoretic perspective and empirical evidence

Sulin Ba, Jan Stallaert, Zhongju Zhang

Research output: Contribution to journalArticle

12 Scopus citations

Abstract

The existence and persistence of price dispersion for identical products in online markets have been welldocumented in the literature. Possible explanations of this price dispersion, derived mainly using hedonic price models, have seen only modest success. In this paper, we propose a competitive model based on online retailers' differentiation mainly in service provided and recognition enjoyed to explain price dispersion. Our exploratory empirical analyses, using cross-sectional data, demonstrate that the competitive model provides a better explanation of the association between prices and online retailers' service and recognition levels. In addition, our competitive model is able to explain observations that are seemingly inconsistent with the hedonic model such as the negative association between service and price. This paper contributes to the literature on price dispersion by offering a differentiation model that provides a good fit with data and by proposing a theory that explains previous counterintuitive observations of prices. Our model also helps an e-tailer to choose a desirable position in the competitive market.

Original languageEnglish (US)
Pages (from-to)575-592
Number of pages18
JournalInformation Systems Research
Volume23
Issue number2
DOIs
StatePublished - Jan 1 2012
Externally publishedYes

Keywords

  • Brand recognition
  • Competitive strategy
  • E-service
  • Online price dispersion
  • Service quality
  • Vertical differentiation

ASJC Scopus subject areas

  • Management Information Systems
  • Information Systems
  • Computer Networks and Communications
  • Information Systems and Management
  • Library and Information Sciences

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