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Journal of Theoretical and Applied Electronic Commerce Research is published by MDPI from Volume 16 Issue 3 (2021). Articles in this Issue were published by another publisher in Open Access under a CC-BY 3.0 licence. Articles are hosted by MDPI on mdpi.com as a courtesy and upon agreement with Faculty of Engineering of the Universidad de Talca.

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Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition?

1
University of Michigan, School of Kinesiology, Ann Arbor, USA
2
Shenzhen University, China Center for Special Economic Zone Research, Shenzhen, China
*
Author to whom correspondence should be addressed.
J. Theor. Appl. Electron. Commer. Res. 2021, 16(2), 140-154; https://doi.org/10.4067/S0718-18762021000200110 (registering DOI)
Received: 2 December 2019 / Revised: 14 July 2020 / Accepted: 24 July 2020 / Published: 28 October 2020
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.
Keywords: competition; market structure; online market; pricing strategy; search competition; market structure; online market; pricing strategy; search
MDPI and ACS Style

Wang, W.; Li, F.; Zhang, Y. Price Discount and Price Dispersion in Online Market: Do More Firms Still Lead to More Competition? J. Theor. Appl. Electron. Commer. Res. 2021, 16, 140-154.

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