Will the growth of multi-channel retailing diminish the pricing efficiency of the web?

Abstract

In this study, we compare the pricing behavior between online branches of traditional retailers and pure Internet retailers. We seek to determine whether the pricing policies of these two types of online organizations differ, possibly because of the different competitive environments in which each operates. While both offer product over the Internet, traditional retailers must also taken into consideration the impact that such offers will have upon the business that they transact in their land-based stores. We anticipate that the constraint of a land-based store will cause such dual-channel operators to charge higher prices than Internet operators not so constrained. Focusing on standardized DVD brands, we gather a data set with of 4896 observations; we find that prices by pure Internet retailers are significantly lower than prices by online multichannel retailers by an average of $3.27 or 14%. The evidence also shows that the price dispersion is sharply lower among the pure Internet retailers than that among the multichannel retailers online. Price changes by both types are few, but adjustment magnitudes are large. This reveals that both types of online retailers do not change their prices frequently despite the claim that menu cost might be negligible for the online market. The evidence suggests that domination of multichannel retailing format may diminish the pricing efficiency of the Web. © 2001 Elsevier Science Inc.