An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information
49 Pages Posted: 11 Aug 2011 Last revised: 13 Jun 2014
Date Written: July 12, 2011
We study competition among a score of firms participating in an online market for a commodity-type memory module. Firms were able to adjust prices continuously; prices determined how the firms were ranked and listed (lowest price listed first), with better ranks contributing to firms’ sales. Using a year’s worth of hourly data, we document the pricing dynamics, cycles, and other patterns in this market. We then characterize empirically the factors which drive price changes, noting clear evidence of firm heterogeneity in the choice of pricing strategy. Finally, we develop a framework for simulating counterfactual market settings, using the simulations to examine counterfactuals involving different mixes of firms according to pricing strategies.
Keywords: Ecommerce, Pricing, Strategy, Repeated Games
JEL Classification: L11, C73, D21, L81
Suggested Citation: Suggested Citation