Reducing buyer search costs: implications for electronic marketplaces
Management Science - Special issue: Frontier research on information systems and economics
Rational shopping behavior and the option value of variable pricing
Management Science
Frictionless Commerce? A Comparison of Internet and Conventional Retailers
Management Science
An Empirical Analysis of Determinants of Retailer Pricing Strategy
Marketing Science
Journal of Management Information Systems
International Journal of Electronic Commerce
Use of Pricing Schemes for Differentiating Information Goods
Information Systems Research
Using Transaction Prices to Re-Examine Price Dispersion in Electronic Markets
Information Systems Research
Online and Offline Demand and Price Elasticities: Evidence from the Air Travel Industry
Information Systems Research
Tabulated decision aids and airfare pricing
Electronic Commerce Research and Applications
Comparison shopping agents and online price dispersion: a search cost based explanation
Journal of Theoretical and Applied Electronic Commerce Research
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A large body of research in economics, information systems, and marketing has sought to understand sources of price dispersion. Previous empirical work has mainly offered consumer-and/or product-based explanations for this phenomenon. In contrast, our research explores the key role played by vendors' price-format adoption in explaining price dispersion. We empirically analyze over a half-million online and offline prices offered by major U.S. airlines in the top 500 domestic markets. Our study shows that a vendor's price format remains an important source of price dispersion in both channels even after accounting for other factors known to impact dispersion in airline ticket prices. Importantly, this finding is true for both transacted and posted tickets. We document several other interesting empirical findings. First, the lower variance in the prices of “everyday low price” (EDLP) firms serves to reduce the market-level dispersion in prices when such firms are present. Moreover, the price variance of non-EDLP firms in these markets is also lower than in those markets in which EDLP competitors are absent. Second, we also find that dispersion in offered prices increases closer to the departure date, which is consistent with theoretical assertion that price dispersion increases with reservation prices. Finally, we continue to observe dispersion of online prices even after accounting for vendor strategy and other known sources of dispersion, suggesting that the prices are unlikely to converge even in the presence of sophisticated online search mechanisms.