Beyond the Hype of Frictionless Markets: Evidence of Heterogeneity in Price Rigidity on the Internet

• Main Authors: Bergen, M., KAUFFMAN, Robert John, Lee, D.W.
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2005
• Subjects: Bookselling; E-commerce; Economic analysis; Empirical research; Empirical regularities; Internet retailing; Price rigidity; Strategic pricing; Numerical Analysis and Scientific Computing
• Online Access: https://ink.library.smu.edu.sg/sis_research/2837
• Institution: Singapore Management University

We explore daily patterns of Internet pricing for the two major retailers, Amazon.com and Barnes and Noble (BN). using data on 377 books collected over a 449-day period in 2003-4. We frame this investigation in terms of a key question; How rigid are prices on the Internet? Are there reasons to suggest that prior predictions of more flexible prices on the Internet may not have been founded on the appropriate theoretical knowledge? We find that Internet retailers, in contrast with traditional firms, adjust prices any day of the week throughout the year. Yet firms' price adjustments for books occur much less frequently than daily--every 90 days on average. For most observers of Internet-based selling, this is surprising, because most expect more frequent price adjustments--based on the quality of technological environment that supports price-setting. In fact, our results show that price-change activity appears to vary by book category, from a high of one change, on average, every 61 days for best sellers to a low of one change every 184 days, on average, for steady sellers. In addition, we learned that individual firms exhibited different patterns for their price changes: Amazon changed book prices every 222 days, whereas BN changed its book prices more frequently, every 56 days on average.