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In this article, the authors develop hypotheses on how prices and price dispersion compare among pure-play Internet, bricks-and-mortar (traditional), and bricks-and-clicks (multichannel) retailers and test them through an empirical analysis of data on the book and compact disc categories in Italy during 2002. Their results, based on an analysis of 13,720 price quotes, show that when posted prices are considered, traditional retailers have the highest prices, followed by multichannel retailers, and pure-play e-tailers, in that order. However, when shipping costs are included, multichannel retailers have the highest prices, followed by pure-play e-tailers and traditional retailers, in that order. With regard to price dispersion, pure-play e-tailers have the highest range of prices, but the lowest standard deviation. Multichannel retailers have the highest standard deviation in prices with or without shipping costs. These findings suggest that online markets offer opportunities for retailers to differentiate within and across the retailer types.
Keywords: pricing; digital economy; e-commerce; information economics; Internet marketing
Research in Internet marketing has increasingly focused on the issue of pricing. In the initial years of the Internet, it was widely predicted that the Internet would lead to a frictionless economy in which prices continually decrease and converge to perfect competition levels (e.g., Alba et al. 1997; Bakos 1997). However, a growing number of theoretical and empirical studies have found that price dispersion is persistent among e-tailers and is no lower online than offline (e.g., Brynjolfsson and Smith 2000; Pan, Ratchford, and Shankar 2003a, 2003b; Scholten and Smith 2002; Shankar, Pan, and Ratchford 2003). Customers not only have lower search costs for information about prices but also have lower search costs for nonprice information (Degeratu, Rangaswamy, and Wu 2000; Smith 2002). These low search costs influence prices of the same item on the Internet and other channels.
Managers are interested in better understanding pricing in different channels.
For a growing number of product markets, the competitive landscape has evolved from a predominantly physical marketplace to one that also includes the electronic marketplace (Parasuraman and Zinkhan 2002; Varadarajan and Yadav 2002; Watson, Berthon, Pitt and Zinkhan 2000). With the emergence of the Internet as a significant channel, we find three types of retailers, pure-play Internet e-tailers, bricks-and-mortar or traditional or offline retailers, and bricks-and-clicks or multichannel retailers,...