Showing papers on "Dynamic pricing published in 1970"

A Longitudinal Price Comparison For Music CD's In Electronic and Brick-and-Mortar Markets: Pricing Strategies In Emergent Electronic Commerce

Abstract: The Internet has great potential as a medium to reach consumers but we still need to improve our understanding of the impact of IT on information asymmetries governing buyer and seller positions. In this study we are primarily interested in exploring differences in pricing strategies between physical and electronic markets, across product categories and over time, and to understand the reasons for these differences. Choosing a homogenous product--music compact disks, we compare prices, price dispersion and price dynamics on the Internet with brick-and-mortar retailers. We collected price information for 21 current-hits and 23 old-hits albums from top five nationally-known brick-and-mortar CD retailers and nine on-line stores, and repeated the data collection one year later Overall, 905 data points, 572 from the Internet and 333 from brick-and-mortar retail shops were collected. We find that: 1) The Internet market continues to show price dispersion despite the apparently near zero search costs for consumers and the growth of market size; 2) Brick-and-mortar markets execute more consistent and dominant short-term discount strategies for current-hit albums, and as a result, CD prices for old-hit albums are cheaper in the Internet market as was found in other studies, but CD prices for current-hit albums in the physical markets are comparable to prices in the Internet market, and; 3) Price dynamics alter over time with Internet retailers offering cheaper prices for albums and apparently employing more frequent and finer price changes. The results suggest that it is important to look at dynamic price behavior and product portfolio issues when trying to characterize pricing strategy in this media. We propose that IT's role in segmenting customers to extract greater consumer surplus, as well as differences in consumer base and preferences and seller cost structures and differentiation strategies, need to be carefully examined to explain price dispersion and dynamic price behavior. Introduction The growing population of Internet users provides a large consumer base for businesses to target. Businesses have responded by increasing their visibility on this medium, and some have tried to move parts of their value chains onto the Internet. Clearly, the Internet has a great potential as a medium to reach consumers. However, our understanding about the Internet as market is still in infancy (Bakos 1998). We need to examine the effectiveness of this medium in effectively disseminating price information to produce efficient markets. We are also interested in investigating how Internet pricing strategy has been set up in a way that is different from the brick-and-mortar market. Above all, we are interested in seeing how pricing strategies of sellers in Internet markets will impact market efficiency. Using the music compact disk (CD) market, we empirically test how the expected efficient pricing is borne out in practice and how the pricing strategies of on-line retail shops are different from traditional markets as they adjust to the new environment. Two categories of albums--current hits and old hits based on the expectation that they have distinctive pricing patterns due to differences in volumes, price sensitivity and customer segment appeal are collected at two different points in time, in the expectation that we would observe the dynamic pricing strategies in the two markets. Through this effort we hope to acquire a better understanding of the difference in strategies utilized by conventional stores and on-line sites. Theoretical Underpinnings One theme consistently discussed in the electronic markets literature is that, with the advent of electronic markets, the buyer will be better off in extracting a share of the sellers' profit (Benjamin & Wigand 1995). It is expected that a reduction of consumer search costs would occur through information technology (Bakos 1997). …