SHOULD WE EXPECT LESS PRICE RIGIDITY IN INTERNET-BASED SELLING?

Price rigidity involves the observation of prices that do not change with the regularity predicted by standard economic theory. It is a topic of long-standing interest for firms, industries and the economy as a whole. As information technology (IT) changes the process by which strategic pricing decisions are made and 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 the domain of the airlines, hotels and rental car companies, with the practice of revenue yield management. However, 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. So, we believe that the issue of price rigidity in the digital economy should be considered with a broader, more deeply insightful perspective. This paper draws 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 that will be of high interdisciplinary interest. Such interdisciplinary studies, we believe, 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 identify those that are most likely to enhance our understanding of pricing in Internet-based selling, and discuss the logical contradictions among competing theories that must be reconciled in order to identify what is most relevant for the Internet retailing context.