Determinants of prices in an online marketplace
| DOI | https://doi.org/10.1108/10610421111157946 |
| Pages | 420-428 |
| Published date | 23 August 2011 |
| Date | 23 August 2011 |
| Author | David J. DiRusso,Susan M. Mudambi,David Schuff |
| Subject Matter | Marketing |
Pricing strategy & practice
Determinants of prices in an online
marketplace
David J. DiRusso
Millersville University, Philadelphia, Pennsylvania, USA, and
Susan M. Mudambi and David Schuff
Temple University, Philadelphia, Pennsylvania, USA
Abstract
Purpose – Despite the availability of side-by-side price comparisons, online retailers often charge very different prices for the same product. The
purpose of this paper is to identify the drivers of price differences in an online retail marketplace by examining pricing information from a sample of
sellers in the market.
Design/methodology/approach – An empirical, quantitative research study of Amazon Marketplace, using 498 observations of online sellers of a
variety of electronics products was conducted. A regression analysis is employed to determine the drivers of these sellers’ prices.
Findings – The results provide a set of factors associated with deviation from the mean price Amazon Marketplace retailers charge for a given product.
The authors find that online retailers that charge higher prices post additional channels of customer service, post their return policy, have lower
reputation scores, display a retail brand logo, offer more products, and are not electronic specialists.
Originality/value – The paper contributes to the theoretical understanding of the effects of information quality and governance structures on prices.
This is the first study to focus on these issues in an online marketplace setting.
Keywords Pricing, Premium pricing, Brands, Logos, Information governance, Customer service management, Reputation (online seller reputation)
Paper type Research paper
Introduction
The internet has made the process of finding and comparing
consumer products and prices significantly easier for
shoppers. Yet quickly finding the best product at the
absolute lowest price, from a retailer that is accessible and
reliable, remains more an ideal than a reality. Since systematic
comparisons across retail web sites require considerable time
and effort, consumers turn to shop bots and online
marketplaces. These two types of price aggregation sites
provide customers with the price of a par ticular product
across a set of retailers, and have been shown to substantially
reduce consumer search costs (Harrington and Leahey,
2007). However, despite these side-by-side price
comparisons, vendors on these sites often offer significantly
different prices for the same product. Past research (e.g. Pan
et al., 2009) has described and explained this phenomenon of
price differences on shopbot sites (such as PriceGrabber), but
leaves unaddressed the question of why price these differences
persist on the more structured and managed online
marketplaces such as Amazon Marketplace. Also
unaddressed is the question of what retailer characteristics
drives prices in these marketplaces.
In this paper, we investigate the phenomena of price
differences for the same product in an online retail
marketplace. We ask the following research question: “How
do online seller characteristics influence price differences in
online marketplaces?”. To address this question, we analyze
the association between characteristics of Amazon
Marketplace retailers and the prices they charge. These
seller characteristics include reputation ratings, the availability
of different aspects of customer service, and level of
specialization.
Online marketplaces, along with shop bots, are the two
dominant models for price aggregation sites. Shop bots are an
organized collection of product listings with links back to the
original vendor sites to get additional informatio n and
complete the transaction. Examples include PriceGrabber
and Google Product Search. Online marketplaces such as
Amazon Marketplace and Buy.com Marketplace are more
structured, with the site itself hosting the vendor and
brokering the transaction. They often have specific rules for
presenting product information. Past research has shown that
variation in prices on shop bots is due, in part, to the lack of
control over information presentation and vendor service
quality in these sites, often leading to the misrepresentation of
product price and shipping costs (Ellison and Ellison, 2009).
Online marketplaces, with their increased structure and
central governance of the transaction, should offer a remedy
to this problem, as the additional structure should enable
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1061-0421.htm
Journal of Product & Brand Management
20/5 (2011) 420–428
qEmerald Group Publishing Limited [ISSN 1061-0421]
[DOI 10.1108/10610421111157946]
420
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