Abstract
In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1290-1308 |
| Number of pages | 19 |
| Journal | Management Science |
| Volume | 59 |
| Issue number | 6 |
| DOIs | |
| State | Published - Jun 2013 |
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Keywords
- Competitive pricing
- Cross-selling capability
- Loss-leader strategy
- Price dispersion
ASJC Scopus subject areas
- Strategy and Management
- Management Science and Operations Research
Cite this
Price dispersion and loss-leader pricing : Evidence from the online book industry. / Li, Xinxin; Gu, Bin; Liu, Hongju.
In: Management Science, Vol. 59, No. 6, 06.2013, p. 1290-1308.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - Price dispersion and loss-leader pricing
T2 - Evidence from the online book industry
AU - Li, Xinxin
AU - Gu, Bin
AU - Liu, Hongju
PY - 2013/6
Y1 - 2013/6
N2 - In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.
AB - In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.
KW - Competitive pricing
KW - Cross-selling capability
KW - Loss-leader strategy
KW - Price dispersion
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UR - http://www.scopus.com/inward/citedby.url?scp=84878999582&partnerID=8YFLogxK
U2 - 10.1287/mnsc.1120.1642
DO - 10.1287/mnsc.1120.1642
M3 - Article
AN - SCOPUS:84878999582
VL - 59
SP - 1290
EP - 1308
JO - Management Science
JF - Management Science
SN - 0025-1909
IS - 6
ER -