Price Rigidity in Internet Retailing

Abstract

Price rigidity involves prices that do not change with the regularity predicted by standard economic theory, and is of long-standing interest to firms and industries, and relates to the economy as a whole. As information technology (IT) changes the processes by which strategic pricing decisions are implemented in business operations, there is a need to develop a more substantial managerial understanding of firm pricing in production process terms. In the 1990s, technology-driven pricing was largely in the domain of the airlines, hotels and rental car companies in the practice of revenue yield management. Now it is possible for bricks-and-clicks firms, and even traditional retailers, to implement systems that permit significant adjustments to be made to prices in situations where menu costs previously made rapid price changes difficult to achieve in an economical way. As a result, we believe that the issue of price rigidity on the Internet should be considered with broader and more deeply insightful inquiry. We draw upon theoretical perspectives that are largely new to the field of Information Systems (IS), but that offer rich opportunities for theory building and empirical research in settings of high interdisciplinary interest. Such studies will provide a distinctive foundation for IS research and serve as a guide to research for a variety of new economic phenomena in economies that are influenced by firm investments in Internet technology. In our analysis of the relevant theories, we identified those that are most likely to enhance our understanding of pricing on the Internet, and we have discussed a series of logical contradictions among competing and complementary theories that must be reconciled to identify the most relevant ways to understand the Internet retailing context.

Keywords: Economic analysis, e-commerce, interfirm competition, information systems, information technology, Internet retailing, literature survey, marketing, price rigidity, pricing strategy