Image Effects and Rational Inattention in Internet-Based Selling

Abstract

We investigate the extent to which certain price points occur in Internet-based selling, and theorize about what drives the observed regularities and variations. This research explores theories based on consumer perceptions of price and quality images, and rational inattention to price-endings. To accomplish this, we specify and test empirical models for price-endings using over 1.5 million daily observations on multiple product categories sold by ninety of Internet-based retailers that were collected over a two-year period. Our results show that a firm's online reputation and relative price levels have effects on the chosen price-endings with respect to different product categories and 9-ending prices increase consumer purchases. The results support an image theory of store quality and price. We also find that the use of 9-ending prices varies across Internet selling formats in a way that is consistent with differences in the rational attentiveness that these channels engender with the consumers who use them. Finally, this research provides additional impetus for future research on the role of information technology in firm price-setting, and gives new insights for marketers who wish to optimize price-setting decisions in the competitive online environment of Internet retailing.

Keywords: Image effects, Internet-based selling, 9-ending prices, price points, rational inattention, strategic pricing, technology impact