Price Dispersion and Loss-Leader Pricing: Evidence from the Online Book Industry

• 成果类型: Article
• 署名作者: Li, Xinxin; Gu, Bin; Liu, Hongju
• 署名单位: University of Connecticut; Arizona State University; Arizona State University-Tempe; University of Connecticut
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.1120.1642
• 发表日期: 2013
• 页码: 1290-1308
• 关键词: price dispersion; loss-leader strategy; Competitive pricing; cross-selling capability

摘要

In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss-leader pricing on high-demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on best sellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes it to the best-seller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.