Assessing Markups, Service Quality, and Product Attributes in Music CDs' Internet Retailing

This paper empirically investigates relationships among markups, service quality, and product attributes across customer, Internet-retailer, and wholesaler echelons. Recent literature has documented the reality of retail price dispersion, but little is known about how retail markups, in particular, are related to service quality and product attributes. For example, how is service quality associated with markups? How are product characteristics related to Internet retailer markups? To examine these issues, we first developed a model of Internet retail profitability that separates revenues and costs related to sales transactions from other sources of profits. This framework allowed us to position our work alongside the extant literature about Internet retailing. Moreover, it led us to synthesize numerous studies that have focused on service quality dimensions in the Internet retailing space. Subsequently, we developed a critical-event study based on the profit model and the synthesis of service-quality dimensions in order to delineate aspects of service that retailers need to emphasize to address buyers' utility. Finally, we collected data from Internet purchases across retailers in order to isolate markup-service quality relationships along our delineated service characteristics. We find that high markups are associated with superior performance by Internet retailers across several service quality dimensions (a service premium effect). Interestingly, this association also turns out to depend on the popularity of the product purchased.