Retail Strategies on the Web:
Price and Non-price Competition in the Online Book Industry
出口公司Karen Clay*, Ramayya Krishnan*, Eric Wolff**, Danny Fernandes* *Heinz School of Public Policy and Management, Carnegie Mellon University,
Pittsburgh, Pennsylvania 15213
email: u.edu, u.edu, u.edu
** Graduate School of Industrial Administration, Carnegie Mellon University, Pittsburgh,
Pennsylvania 15213
email: u.edu
Abstract
Two conflicting predictions have emerged regarding the effect of low-cost information on price. The first states that all Internet retailers will charge the same low price for mass produced goods. The co
nd states that Internet retailers will differentiate to avoid inten price competition. Using data collected in April 1999 on the prices of 107 books in thirteen online and two physical bookstores, we find similar average prices online and in physical stores and substantial price dispersion online. Analysis of product differentiation yields no clear results. The substantial premium charged by Amazon provides indirect evidence of product differentiation.
Acknowledgements
抑郁的药有哪些We would like to thank Bo-Han Chen, Kang-Bae Lee, and Yimin Yang for excellent rearch assistance, conference participants at the Second International Conference on Telecommunications and Electronic Commerce (ICTEC) for comments, and Y. S. Chi of Ingram Book Group for insights on the wholesale market for books. We would also like to thank Severin Borenstein, Ken Hendricks, and two anonymous referees for their insightful comments.
I. Introduction
Electronic commerce is a significant force in the consumer economy. One widely-reported prediction is that the availability of low-cost information on price –specifically the ri of comparison shopping engines – will lead all Internet retailers to charge the same price for mass produced physical goods.
No retailer will be able to charge more, becau customers would not buy from that retailer. This prediction is in tension with another prediction – that firms prefer not to compete directly on price becau of the low profits that result and so will ek to differentiate themlves.
If arch were easier on the Internet, we would expect competitive pressures there to be stronger, and prices lower, than in conventional channels. Early empirical work yielded conflicting results. Lee [1997] found that prices for ud cars were higher on the Internet than in conventional channels.1 A study by Bailey [1998] also found that prices for books, compact disks, and computer software during 1996-97 were higher on the Internet than in conventional channels. Subquent work by Brynjolfsson and Smith [1999] on books and compact disks for 1998-99 found that Internet retailers had lower prices. Clemons, Hitt, and Hann [1998] examined product differentiation in the online travel industry. They found that agents responded to identical requests with different time/price pairs, evidence that some differentiation had occurred.
To investigate the effect of comparison shopping engines on the retail price of mass produced physical goods, we collected price data the week of April 19, 1999 for 107 books across thirteen firms in the online book industry and two nationwide chains with physical stores. The books included 40 New York Times bestllers and a random sample of 67 books from Books in Print. The firms incl
托莱多>两融绕标uded Barnes and Noble, Borders,
Amazon, , , as well as lesr-known players such as Spree, ,
茶漏
The data were ud to investigate three questions: 1) How does the price of books on the Internet compare to the publishers’ suggested retail price and to the price in large bricks and mortar chains? 2) Has the low-cost availability of pricing information led to price convergence on the Internet? 3) If prices fail to converge, can price dispersion be explained by product differentiation? Bailey [1998] and Brynjolfsson and Smith [1999] addresd the first two questions, and we build on their work by using data for a wider range of books and a large sample of online bookstores. Our study departs from their work in its focus on firms’ strategies for differentiating themlves in an online context.
We found that as of April 1999 prices were the same on and offline, online prices had not converged, and differentiation had had little measurable impact. Controlling for the books that they carried, online and physical stores charged the same unit prices on average. Becau sales tax was less than the cost of shipping a single book, total prices were lower in physical stores than in online stores. The average book in our sample sold for 85 percent of the publishers recommended price, w
ell above the lowest online price and industry reports of cost. The average difference between the minimum and the maximum price as a percentage of average price ranged from 27 percent for hardcover random books to 73 percent for paperback bestllers, suggesting that prices had not converged. Regressions on the relationship between store attributes and prices proved inconclusive. This suggests that store attempts at product differentiation had not had much of an impact, possibly becau the market was not yet in equilibrium. The fact that Amazons’ unit prices were 5 percent higher ’s unit prices and
11 percent higher ’s unit prices provides some indirect evidence of product differentiation.
II. Predictions
The ri of comparison shopping engines led many obrvers to predict that prices would be extremely competitive on the Internet, forcing all Internet retailers to t the same low price for mass produced physical goods. For instance, in December 1998 Wall Street Journal article, Rebecca Quick noted “Many retailers worry that the robots will t off a vicious pricing war in cyberspace and force them to slice profit margins to razor-thin levels.”2 And an August 1999 article in The Economist stated “Fierce competition has forced web companies to slash prices.”3
would
The predictions draw on the Bertrand model of competition. Markets for standardized mass produced physical goods such as books appear to satisfy some of the restrictive assumptions of the Bertrand model – the books are identical, firms choo the price, and firms can supply market demands at constant marginal cost. There are at least two reasons, however, why we may e price dispersion in the real world: i) consumers may not have perfect information about prices and ii) the products that firms offer may not be identical, even if the books are.
Acquiring information about prices on the Internet is much easier than for prices from parate physical bookstores. For instance, one can u comparison shopping engines such as DealTime, , , and mySimon to obtain price information for books from a wide variety of stores.4 For consumers to have perfect information about prices, however, they have to know such arch engines exist and u them. Some consumers may not know about the engines and others (including some of
the authors of this study) may not always take the time to u them. Thus, some consumers may not be perfectly informed about prices.
Imperfect information about prices implies that price may not converge, becau uninformed custom
ers choo firms bad on convenience or word of mouth. Early work by Stigler [1961] predicts advertising that improves price information would cau both price and price dispersion to fall. Empirical studies comparing prices of goods such as eyeglass, optometry rvices, and prescription drugs in states that permitted or did not permit advertising showed that advertising was associated with lower prices and price dispersion.5 More recent empirical and theoretical work by Varian [1980], Salop and Stiglitz [1977], and Milyo and Waldfogel [1999] suggests that if consumers face differential costs of acquiring information, improved information may not lower price and price dispersion.
是日更定矣的是Seemingly as a result of imperfect information, some firms em to have adopted pricing strategies that involve offering low prices only for certain categories of books or low prices but high shipping costs.6 The differences in pricing strategies imply that comparisons of price should include factors such as tax and shipping costs. Thus, in the empirical analysis that follows, we examine pricing strategies both with and without tax and shipping costs.
Even if we assume that customers are perfectly informed about prices, although books are homogeneous goods, the book buying experience may not be. The cond prediction is that firms prefer not to compete directly on price, and they will ek to differentiate themlves. There are man
y ways in which firms can differentiate themlves: through book reviews, newsletters, gift rvices, and loyalty programs, to鸡怎么做
