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Limit price
About: Limit price is a research topic. Over the lifetime, 4865 publications have been published within this topic receiving 148546 citations.
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TL;DR: It is found that price dispersion in the electronic market is as low as 0.22%, which is substantially less than that reported in the existing literature and suggests that in some electronic markets the “law of one price” can prevail when the authors consider transaction prices, instead of posted prices.
Abstract: Price dispersion is an important indicator of market efficiency. Internet-based electronic markets have the potential to reduce transaction and search costs, thereby creating more efficient, “frictionless” markets, as predicted by theories in information economics. However, earlier work has reported significant levels of price dispersion on the Internet, which is in contrast to theoretical predictions. A key feature of the existing stream of work has been its use of posted prices to estimate price dispersion. In theory, this can lead to an overestimation of price dispersion because a sale may not have occurred at the posted price. In this research, we use a unique data set of actual transaction prices collected from both the electronic and offline markets of buyers in a business-to-business market to evaluate the extent of price dispersion. We find that price dispersion in the electronic market is as low as 0.22%, which is substantially less than that reported in the existing literature. This near-zero price dispersion suggests that in some electronic markets the “law of one price” can prevail when we consider transaction prices, instead of posted prices. We further develop a theoretical framework that identifies several new drivers of price dispersion using transaction data. In particular, we focus on four product-level and market-level attributes---product cost, order cycle time, own price elasticity, and transaction quantity, and we estimate their impact on price dispersion. We also examine the electronic market's moderating role in the relationship between these drivers and price dispersion. Finally, we estimate the efficiency gains that accrue from transactions in the relatively friction-free market and find that the electronic market can enhance consumer surplus by as much as $97.92 million per year.
93 citations
92 citations
TL;DR: The relative importance of actual and potential competition in the pharmaceuticals market is discussed in this article, where empirical evidence from the pharmaceutical market is used to evaluate the potential competition of drugs.
Abstract: The Relative Importance of Actual and Potential Competition : Empirical Evidence From the Pharmaceuticals Market
92 citations
TL;DR: Research on electronic markets has revealed that IT has increased market transparency due to increased accessibility and availability of market information, but what online sellers do in terms of strategic pricing decisions, in particular price adjustment behavior over time, has not been fully investigated.
Abstract: Determining prices is a key management task for a merchant. IT-enabled electronic markets facilitate price discovery by both buyers and sellers compared to traditional, physical markets. Recent research on electronic markets has revealed that IT has increased market transparency due to increased accessibility and availability of market information. How ever, what online sellers do in terms of strategic pricing decisions, in particular price adjustment behavior over time, has not been fully investigated. Due to the ease of making price changes, electronic sellers can execute a number of dif ferent pricing strategies, including setting the frequency and
92 citations
TL;DR: In this paper, the authors study the price setting problem of a firm in the presence of both observation and menu costs and study how the firm's choices map into several observable statistics, depending on the level and relative magnitude of the observation vs the menu cost.
Abstract: We study the price setting problem of a firm in the presence of both observation and menu costs. In this problem the firm optimally decides when to collect costly information on the adequacy of its price, an activity which we refer to as a price “review”. Upon each review, the firm chooses whether to adjust its price, subject to a menu cost, and when to conduct the next price review. This behavior is consistent with recent survey evidence documenting that firms revise prices infrequently and that only a few price revisions yield a price adjustment. The goal of the paper is to study how the firm’s choices map into several observable statistics, depending on the level and relative magnitude of the observation vs the menu cost. The observable statistics are: the frequency of price reviews, the frequency of price adjustments, the size-distribution of price adjustments, and the shape of the hazard rate of price adjustments. We provide an analytical characterization of the firm’s decisions and a mapping from the structural parameters to the observable statistics. We compare these statistics with the ones obtained for the models with only one type of cost. The predictions of the model can, with suitable data, be used to quantify the importance of the menu cost vs. the information cost. We also consider a version of the model where several price adjustment are allowed between observations, a form of price plans or indexation. We find that no indexation is optimal for small inflation rates.
92 citations