Frictionless Commerce? A Comparison of Internet and Conventional Retailers

Abstract

T here have been many claims that the Internet represents a new nearly "frictionless market." Our research empirically analyzes the characteristics of the Internet as a channel for two categories of homogeneous products-books and CDs. Using a data set of over 8,500 price observations collected over a period of 15 months, we compare pricing behavior at 41 Internet and conventional retail outlets.We find that prices on the Internet are 9 -16% lower than prices in conventional outlets, depending on whether taxes, shipping, and shopping costs are included in the price. Additionally, we find that Internet retailers' price adjustments over time are up to 100 times smaller than conventional retailers' price adjustments-presumably reflecting lower menu costs in Internet channels. We also find that levels of price dispersion depend importantly on the measures employed. When we compare the prices posted by different Internet retailers we find substantial dispersion. Internet retailer prices differ by an average of 33% for books and 25% for CDs. However, when we weight these prices by proxies for market share, we find dispersion is lower in Internet channels than in conventional channels, reflecting the dominance of certain heavily branded retailers.We conclude that while there is lower friction in many dimensions of Internet competition, branding, awareness, and trust remain important sources of heterogeneity among Internet retailers.

How do you feel when you see a list of prices? the interplay among price dispersion, perceived risk and initial trust in Chinese C2C market

“…Some studies have found that online price dispersion is higher than offline price dispersion (Ancarani & Shankar, 2004;Brynjolfsson & Smith, 2000;Clay et al, 2002); others have found that offline price dispersion is higher (Brown & Goolsbee, 2002;Brynjolfsson & Smith, 2000); and still others have found no significant difference between online and offline price dispersion (Scholten & Smith, 2002). Moreover, as many sellers offer both online and offline retailing, researchers are motivated to explore how multichannel retailing influences price dispersion.…”

“…Motivated by previous studies on price dispersion (Brynjolfsson & Smith, 2000;Kim, et al, 2012;Lu et al, 2007), we select books and CDs as low-touch goods as their characteristics are more identical and stable. For high-touch products, we choose cell phones and clothes as their features (e.g., the sensitivity of screen) cannot be thoroughly known before purchase.…”

“…Our model suggests that price dispersion negatively affect buyers in two ways: 1) it increases buyers' perceived risk, and 2) it requires buyers to put more effort to locate the best offer and therefore reduces perceived value. Second, previous studies have investigated the effects of trust on price dispersion, i.e., a seller with higher trust value enjoys a higher price premium (Brynjolfsson & Smith, 2000;Pan, et al, 2004); however, it is unknown that how price dispersion influences trust. Our results show that price dispersion negatively affects initial trust, as it increases uncertainty and therefore induces buyers to form negative attitude towards a set of sellers, despite the existence of honest sellers.…”

“…Besides, since many types of relationships have been proposed between perceived risk and trust, it is valuable to explore how trust influences perceived risk under different levels of price dispersion. (Walter et al, 2006) Evaluation Cost (Walter, et al, 2006) Product & Service Product cost structure (Walter, et al, 2006) Price discrimination (Pan, et al, 2002) Brand loyalty (Pan, et al, 2002) Trust and reputation (Brynjolfsson & Smith, 2000;Maxwell et al, 2011) Pricing strategy (Ghose et al, 2007) Product information quality (Chung et al, 2006) Product and service differentiation (Clemons et al, 2002) Service quality (Pan, et al, 2002) Product condition (Prieto et al, 2015) Price format (Chellappa et al, 2011) Market Number of competitors (Bock et al, 2007) Product popularity (Pan, et al, 2004) Maturity (Bock, et al, 2007) Product price level (Maxwell, et al, 2011) Effects of online price dispersion _ Transaction Risk (Biswas & Burman, 2009) Search Amount/Intention (Biswas, 2004) Internal reference price (Chen & Bei, 2005;Lai, et al, 2006) (Time Risk)…”

Corporate Governance and IT Governance: Exploring the Board's Perspective

“…This aimed to understand the world of the board members and how the boards on which they served dealt with IT. Since it has been observed that the perceived risks of electronic commerce are major impediments to the adoption of electronic commerce systems (Brynjolfsson andSmith 2000, Ernst andYoung 2000), it was decided to use this as a focus. The level of interest in electronic commerce in the business community generally added interest to the potential research subjects.…”