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Who wins when price information is more ubiquitous? An experiment to assess how infomediaries influence price

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Abstract

Internet retailers often make use of price search services (infomediaries) that have the effect of reducing consumer search and expanding seller market presence. Research on price and advertising suggests that this may not be a profitable strategy. We develop an experimental posted-offer market to estimate the impact of infomediaries on price of homogenous goods. We analyze panel data from a range of market conditions that address how infomediaries services affect both seller-level offered price as well as market-level transacted price. We find that, while sellers attempt to extract higher prices through a higher initial offer price when using an infomediary, they fail to successfully collect it; transacted prices remain largely unchanged. As a consequence the benefits of infomediaries fall primarily to the buyer who faces largely unchanged transacted prices, and substantially reduced search costs. Search costs are, in essence shifted to the seller. Sellers who participate in this sort of price comparison should be aware that they are following a high-volume/low profit per unit strategy.

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Notes

  1. We thank the anonymous reviewer for suggesting this comment.

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Author information

Authors and Affiliations

  1. MIS, OM & DSC Department, University of Dayton, 300 College Park Avenue, Dayton, OH, 45469-1030, USA

    Michael F. Gorman & Wm. David Salisbury

  2. Republican Policy Committee, United States Senate, Washington, DC, 20510, USA

    Ike Brannon

Authors
  1. Michael F. Gorman
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  2. Wm. David Salisbury
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  3. Ike Brannon
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Corresponding author

Correspondence to Wm. David Salisbury.

Additional information

Responsible editor: Rolf T. Wigand

An earlier version of this manuscript was presented at the Conference of the Administrative Sciences Association of Canada, Information Systems Division.

Appendix−Summary instructions for buyers and sellers

Appendix−Summary instructions for buyers and sellers

SUMMARY OF BUYER INSTRUCTIONS

SUMMARY OF SELLER INSTRUCTIONS

1. The experiment takes place over a number of Trading Periods.

1. The experiment takes place over a number of Trading Periods.

2. For each unit you buy, you will receive the difference between the Resale value of that unit and its Purchase price.

2. For each unit you sell, you will receive the difference between your Selling Price and the Production Cost for that unit.

3. SELLERS begin each period by offering a price and a number of units for sale.

3. SELLERS begin each period by offering a price and a number of units for sale.

4. After SELLERS have made their offers, they will each be asked to advertise their prices to BUYERS.

4. After all SELLERS have made their offers, they will be asked to advertise their prices to BUYERS. For each BUYER you elect to advertise to, you will be charged an advertising FEE.

5. If a SELLER does not advertise to you, you wil be able to pay to see his price if you desire.

5. If you do not advertise, BUYERS will still be able to pay to see you price. But if you do not advertise and a BUYER does not pay to see your price, you will not be able to sell any units to that BUYER.

6. After SELLERS have finished advertising, BUYERS will be asked to pay to see SELLERS’ prices. You will be charged an Informatin Fee for each price you elect to reveal. Remember, if you cannot see a SELLER’s price, you will not be able to buy any units from him.

6. After SELLERS have finished advertising, BUYERS will be asked to pay to see the prices of those SELLERS who did not advertise.

7. To start the buying mode, the computer randomly selects a BUYER who will then be able to buy units. When you buy a unit, the computer automatically records the transaction for you in your record sheet.

7. To start the buying mode, the computer randomly selects a BUYER who will then be able to buy units. If a BUYER purchases one of your units, the computer automatically records the sale on your record sheet.

8. After each BUYER has been given a chance to purchase units, a new Trading Period will begin.

8. After each BUYER has been given a chance to purchase units, a new Trading Period will begin.

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Gorman, M.F., Salisbury, W.D. & Brannon, I. Who wins when price information is more ubiquitous? An experiment to assess how infomediaries influence price. Electron Markets 19, 151–162 (2009). https://doi.org/10.1007/s12525-009-0009-z

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  • DOI: https://doi.org/10.1007/s12525-009-0009-z

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