Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition?
Abstract: Contrary to the traditional economic prediction that prices decrease as more firms enter the market, this paper finds a non-monotonic relationship between the number of firms and prices in online book markets. A substantial decrease in posted prices is observed when the market moves from a...
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Universidad de Talca
2021
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oai:scielo:S0718-187620210002001102020-11-26Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition?Wang,WencheLi,FanZhang,Yujia Competition Market structure Online market Pricing strategy Search Abstract: Contrary to the traditional economic prediction that prices decrease as more firms enter the market, this paper finds a non-monotonic relationship between the number of firms and prices in online book markets. A substantial decrease in posted prices is observed when the market moves from a monopoly to duopoly. Surprisingly, as the market further expands, posted prices converge to monopoly price rather than competitive price. This is because as the number of sellers increase on the internet, the cost for consumers to obtain accurate information as well as the cost to evaluate products and sellers increase. Thus, the existence of a large number of sellers deter consumer search and lead to more random purchases. With little consumer search, sellers’ returns to undercutting price reduce. Therefore, instead of lowering price when faced with more competitors, sellers increase prices.info:eu-repo/semantics/openAccessUniversidad de TalcaJournal of theoretical and applied electronic commerce research v.16 n.2 20212021-05-01text/htmlhttp://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-18762021000200110en10.4067/S0718-18762021000200110 |
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Scielo Chile |
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Scielo Chile |
| language |
English |
| topic |
Competition Market structure Online market Pricing strategy Search |
| spellingShingle |
Competition Market structure Online market Pricing strategy Search Wang,Wenche Li,Fan Zhang,Yujia Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| description |
Abstract: Contrary to the traditional economic prediction that prices decrease as more firms enter the market, this paper finds a non-monotonic relationship between the number of firms and prices in online book markets. A substantial decrease in posted prices is observed when the market moves from a monopoly to duopoly. Surprisingly, as the market further expands, posted prices converge to monopoly price rather than competitive price. This is because as the number of sellers increase on the internet, the cost for consumers to obtain accurate information as well as the cost to evaluate products and sellers increase. Thus, the existence of a large number of sellers deter consumer search and lead to more random purchases. With little consumer search, sellers’ returns to undercutting price reduce. Therefore, instead of lowering price when faced with more competitors, sellers increase prices. |
| author |
Wang,Wenche Li,Fan Zhang,Yujia |
| author_facet |
Wang,Wenche Li,Fan Zhang,Yujia |
| author_sort |
Wang,Wenche |
| title |
Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| title_short |
Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| title_full |
Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| title_fullStr |
Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| title_full_unstemmed |
Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? |
| title_sort |
price discount and price dispersion in online market: do more firms still lead to more competition? |
| publisher |
Universidad de Talca |
| publishDate |
2021 |
| url |
http://www.scielo.cl/scielo.php?script=sci_arttext&pid=S0718-18762021000200110 |
| work_keys_str_mv |
AT wangwenche pricediscountandpricedispersioninonlinemarketdomorefirmsstillleadtomorecompetition AT lifan pricediscountandpricedispersioninonlinemarketdomorefirmsstillleadtomorecompetition AT zhangyujia pricediscountandpricedispersioninonlinemarketdomorefirmsstillleadtomorecompetition |
| _version_ |
1714202241597964288 |