Free Riding and Sales Strategies for the Internet
35 Pages Posted: 5 Jan 2001 Last revised: 18 Jul 2022
Date Written: January 2001
Abstract
We examine manufacturers' decisions of whether and how to offer their products for sale over the internet. Manufacturers that rely on promotion of their products by brick and mortar retailers must consider the possibility that internet retailers can free ride off of that promotional effort. This creates an incentive for manufacturers to limit the availability of their products over the internet and to control the pricing of their products over the internet. We examine three categories of products: fragrances, DVD players, and side by side refrigerators. Our evidence suggests that manufacturers that limit distribution in the physical world also use various mechanisms to limit distribution online. In particular, we find evidence that these manufacturers attempt to prevent the sale of their products by online retailers who sell goods at deep discounts. Furthermore, we show that manufacturers who distribute their goods directly through manufacturer websites tend to charge very high prices for the products, consistent with the hypothesis that manufacturers internalize free rider issues. While our main focus is on free riding, our evidence on pricing practices is germane to the growing literature on price dispersion on the internet.
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
Does the Internet Make Markets More Competitive?
By Jeffrey R. Brown and Austan Goolsbee
-
Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry
By Jeffrey R. Brown and Austan Goolsbee
-
Prices and Price Dispersion on the Web: Evidence from the Online Book Industry
By Karen Clay, Ramayya Krishnan, ...
-
Search, Obfuscation, and Price Elasticities on the Internet
By Glenn Ellison and Sara Fisher Ellison
-
Search, Obfuscation, and Price Elasticities on the Internet
By Glenn Ellison and Sara Fisher Ellison
-
Evidence on Learning and Network Externalities in the Diffusion of Home Computers
By Austan Goolsbee and Peter J. Klenow
-
In a World Without Borders: The Impact of Taxes on Internet Commerce
-
In a World Without Borders: the Impact of Taxes on Internet Commerce
-
Understanding Digital Markets: Review and Assesment
By Michael D. Smith, Joseph Bailey, ...