Competitiveness and Price Convergence on the Internet: Evidence from the Online DVD Market

• Main Authors: XING, Xiaolin, TANG, Fang Fang, YANG, Zhenlin
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2003
• Subjects: Online Market; Dotcom; Multi-Channel Retailer; Pricing; Price Convergence; Competitive Market; E-Commerce; Econometrics; Industrial Organization
• Online Access: https://ink.library.smu.edu.sg/soe_research/1185; https://ink.library.smu.edu.sg/context/soe_research/article/2184/viewcontent/DVDprice_YZL.pdf
• Institution: Singapore Management University

We compare the pricing behavior between online branches of traditional retailers (MCR) and pure Internet retailers (Dotcom) in the DVD market. Based on a set of panel data from July 5, 2000 to June 11, 2001, we find that the average price of the MCRs is about 11.2% higher than that of the Dotcoms. Further statistical analyses on the market dynamics of price trends show that the prices of the Dotcoms went up with time much faster than the prices of the MCRs, which points to a possibility that eventually both types of retailers may charge similar prices on average. We also find that the price dispersion among the MCRs is about 74% higher than that among the Dotcoms, and that the price dispersion went down with time for the MCRs and up with time for the Dotcoms. This suggests that the two types of retailers not only will charge similar average prices in the long run, but also will have similar price dispersions. Our methodology of market price evaluation to the online retailer formats directly addresses a fundamental question whether the online markets would evolve toward a perfectly competitive market. The online DVD market seems indeed moving towards such a direction, although significant pricing differentials still exist.