Bargaining and Posted Prices: What Does the Internet Change?

29 Pages Posted: 21 Dec 2006

See all articles by Thierry Pénard

Thierry Pénard

Université de Rennes 1 - Faculte de Sciences Economiques; Armorican Mole for Research on the Information Society and Uses of the Internet; Centre de Recherche en Économie et Management (CREM)

Michael A. Arnold

University of Delaware - Alfred Lerner College of Business and Economics

Date Written: December 18, 2006

Abstract

The Internet has introduced a variety of online buying services that expand the reach of sellers and reduce search costs for buyers. In markets in which traditional outlets tend to establish prices through bargaining, these online intermediaries have also altered the price setting process. Perhaps the most well known example is Autobytel.com which provides referral services in the automobile market. By using Autobytel, a buyer can obtain a posted price as an alternative to bargaining with a car dealership. To understand the effect of online referral systems on the price setting process, we construct a theoretical model of oligopolistic price competition in which one dealership has an exclusive contract with a referral intermediary. We show that posted prices offered through the referral system are not necessarily lower than offline prices (bargained prices). Our model provides theoretical insights relevant to results in the empirical literature addressing the role that Autobytel and other infomediaries play in online markets.

Keywords: online markets, E-commerce, intermediary, autobytel, pricing

JEL Classification: D4, D83, L19, L89

Suggested Citation

Pénard, Thierry and Arnold, Michael A., Bargaining and Posted Prices: What Does the Internet Change? (December 18, 2006). Available at SSRN: https://ssrn.com/abstract=952947 or http://dx.doi.org/10.2139/ssrn.952947

Thierry Pénard (Contact Author)

Université de Rennes 1 - Faculte de Sciences Economiques ( email )

7, Place Hoche
35000 Rennes
France

Armorican Mole for Research on the Information Society and Uses of the Internet ( email )

France

Centre de Recherche en Économie et Management (CREM) ( email )

7 place Hoche
Rennes, Bretagne 35065
France

Michael A. Arnold

University of Delaware - Alfred Lerner College of Business and Economics ( email )

Purnell Hall
Newark, DE 19716
United States
(302) 831-1916 (Phone)
(302) 831-6968 (Fax)

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