Imperfect information: The persistence of price dispersion on the web

Abstract

In this article, the authors empirically test the notion that as the mean price of durables increases, the degree of dispersion also increases. This effect holds even when they specifically consider variables such as the number of competitors and store quality. The authors suggest that an individual-level perceptual mechanism, the psychophysics of price, at the aggregate level helps explain continued price dispersion on the Web. These results are contrary to predictions from standard economic theory, which suggest that readily available price information will result in increased price competition and lower price dispersion. Two studies consistently demonstrate that as the mean price of an item increases, price dispersion also increases. These results provide evidence that, contrary to general economic expectations, the Internet has not commoditized products. Retailers and managers need to pay attention to Internet information but not be fearful of its impact on their pricing strategies.

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Correspondence to Joan Lindsey-Mullikin.

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Joan Lindsey-Mullikin (jmullikin@babson.edu; Ph.D., Arizona) is an assistant professor of marketing at Babson College. Her research and teaching interests focus on pricing, retailing, and consumer behavior. She has published in journals such as theJournal of Retailing, Journal of the Academy of Marketing Science, Journal of Consumer Affairs, Journal of Social Psychology, andJournal of Product and Brand Management. She serves on the review board of theJournal of Product and Brand Management.

Dhruv Grewal (dgrewal@babson.edu; Ph.D., Virginia Tech) is the Toyota Chair in Commerce and Electronic Business and a professor of marketing at Babson College. He is currently coeditor of theJournal of Retailing (2001-present). His research and teaching interests focus on e-business, retailing, global marketing, pricing and value-based marketing strategies. He will be awarded the 2005 Lifetime Achievement in Behavioral Pricing Award (Fordham University, November 2005). He is a “Distinguished Fellow” of the Academy of Marketing Science. He has published more than 65 articles in journals such as theJournal of Marketing, Journal of Consumer Research, Journal of Marketing Research, Journal of Retailing, andJournal of the Academy of Marketing Science. He was won awards for his teaching and research. He cochaired the 1993 Academy of Marketing Science Conference, the 1998 Winter American Marketing Association Conference “Reflections & Future Directions for Marketing,” and the 2001 AMA doctoral consortium. He will be cochairing the American Marketing Association 2006 Summer Educator’s Conference.

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Lindsey-Mullikin, J., Grewal, D. Imperfect information: The persistence of price dispersion on the web. JAMS 34, 236 (2006). https://doi.org/10.1177/0092070305283366

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Keywords

  • pricing
  • retailing
  • Internet
  • price dispersion
  • market price variation