Price Rigidity on the Internet: New Evidence from the Online Bookselling Industry

This study reports on an econometric analysis of a new theoretical model for price rigidity in Internet-based bookselling. We consider a variety of theoretical perspectives from marketing and economics. We specify and test a model using data on 387 books sold on the Internet that were collected over a 309-day period in 2003 and 2004. The aggregate data are built based on 1.2 million daily observations, and provide a reading on the variation in prices of homogeneous products for between three and eleven different “stores” on the Internet. We obtained a number of interesting findings from the estimation of the grouped logit model. More frequent price adjustments in Internet-based selling appear to be associated with lowerpriced goods, consumer expectations of ongoing price promotions, and popular products. Nine-price endings and highly observed product information are associated with greater price rigidity, as are high-priced products. We found mixed evidence that Internet-based sellers use shipping fees as a means to adjust prices. Taken together, our results indicate the roles of both price elements and non-price elements in explaining price rigidity.

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