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

Sulin Ba, Jan Stallaert, Zhongju Zhang

Research output: Contribution to journalArticle

9 Citations (Scopus)

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 - 2012
Externally publishedYes

Fingerprint

evidence
online service
Price dispersion
Empirical evidence
market
persistence
Competitive model
Retailers
literature
Cross-sectional data
Hedonic model
Competitive market
Hedonic price model
Persistence
Online markets

Keywords

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

ASJC Scopus subject areas

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

Cite this

Online price dispersion : A game-theoretic perspective and empirical evidence. / Ba, Sulin; Stallaert, Jan; Zhang, Zhongju.

In: Information Systems Research, Vol. 23, No. 2, 2012, p. 575-592.

Research output: Contribution to journalArticle

@article{cf8621ebb1ea4efd8fdfa3196ec99675,
title = "Online price dispersion: A game-theoretic perspective and empirical evidence",
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.",
keywords = "Brand recognition, Competitive strategy, E-service, Online price dispersion, Service quality, Vertical differentiation",
author = "Sulin Ba and Jan Stallaert and Zhongju Zhang",
year = "2012",
doi = "10.1287/isre.1110.0353",
language = "English (US)",
volume = "23",
pages = "575--592",
journal = "Information Systems Research",
issn = "1047-7047",
publisher = "INFORMS Inst.for Operations Res.and the Management Sciences",
number = "2",

}

TY - JOUR

T1 - Online price dispersion

T2 - A game-theoretic perspective and empirical evidence

AU - Ba, Sulin

AU - Stallaert, Jan

AU - Zhang, Zhongju

PY - 2012

Y1 - 2012

N2 - 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.

AB - 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.

KW - Brand recognition

KW - Competitive strategy

KW - E-service

KW - Online price dispersion

KW - Service quality

KW - Vertical differentiation

UR - http://www.scopus.com/inward/record.url?scp=84871324640&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=84871324640&partnerID=8YFLogxK

U2 - 10.1287/isre.1110.0353

DO - 10.1287/isre.1110.0353

M3 - Article

AN - SCOPUS:84871324640

VL - 23

SP - 575

EP - 592

JO - Information Systems Research

JF - Information Systems Research

SN - 1047-7047

IS - 2

ER -