Price dispersion and loss-leader pricing: Evidence from the online book industry

摘要

Research evidence shows that a more efficient market reduces price dispersion for homogeneous goods and declines as the Internet market matures and more online retailers join the competition. However, some studies point out that there is an anomaly in which some products such as for bestselling books, the price dispersion is significantly higher than that for average books, despite more online bookstores and wide availability of price information. This contradicts the previous findings that increased competition and lower search costs lead to lower price dispersion. The research work through a deeper analysis tries to examine the plausible cause of higher price dispersion observed for popular products. An analytical model has been constructed to examine competing retailers' pricing strategies in a market where retailers have asymmetric cross-selling capabilities, and product demand changes in response to demand shocks. The panel data set from 22 online retailers for 1,614 hardcover books were used to empirically assess the predictions of the model by analyzing changes in book price and price dispersion when product demand increases and the results have been discussed.