An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information
Sara Fisher Ellison
Massachusetts Institute of Technology (MIT) - Department of Economics
Christopher M. Snyder
Dartmouth College - Department of Economics
July 12, 2011
MIT Department of Economics Working Paper No. 11-13
We study competition among a score of firms participating in an online market for a commodity-type memory module. Firms were able to adjust prices continuously; prices determined how the firms were ranked and listed (lowest price listed first), with better ranks contributing to firms’ sales. Using a year’s worth of hourly data, we document the pricing dynamics, cycles, and other patterns in this market. We then characterize empirically the factors which drive price changes, noting clear evidence of firm heterogeneity in the choice of pricing strategy. Finally, we develop a framework for simulating counterfactual market settings, using the simulations to examine counterfactuals involving different mixes of firms according to pricing strategies.
Number of Pages in PDF File: 49
Keywords: Ecommerce, Pricing, Strategy, Repeated Games
JEL Classification: L11, C73, D21, L81working papers series
Date posted: August 11, 2011 ; Last revised: August 18, 2011
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