Strategies and Price Competition on the Internet
30 Pages Posted: 3 Dec 2004
Date Written: February 2005
French E-commerce sales have tremendously grown these last two years, even if the estimated amount of transaction is still marginal. Beyond this relative success, E-commerce raises many questions. Are electronic markets more competitive than traditional markets? How can we explain price dispersion on Internet? This paper deals with the pricing strategies of on-line retailers. For this purpose, we have collected data about CD prices on Internet during June and July 2001. This data set enables us to establish that online prices are strongly dispersed and rather volatile. Then we develop a repeated game model to analyze behaviors of CD retailers. Hence we prove that the probability of price collusion should increase with the age of a CD and decrease with its popularity. In other words, a collusion between CD retailers is more likely when the demand for a CD declines. This hypothesis is not rejected by econometric regressions on price level and price dispersion. These results give evidence of a relaxed competition on the older and less popular CD records.
Keywords: E-commerce, pricing strategies, imperfect competition
JEL Classification: L13
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