Information Technology and Pricing Decisions: Price Adjustments in Online Computer Markets
Authors: Oh, Wonseok; Lucas, Henry C.
Journal: MIS Quarterly (2006)
DOI: 10.2307/25148748
Determining prices is a key management task for a merchant. IT-enabled electronic markets facilitate price discovery by both buyers and sellers compared to traditional, physical markets. Recent research on electronic markets has revealed that IT has increased market transparency due to increased accessibility and availability of market information. However, what online sellers do in terms of strategic pricing decisions, in particular price adjustment behavior over time, has not been fully investigated. Due to the ease of making price changes, electronic sellers can execute a number of different pricing strategies, including setting the frequency and amount of price changes. We investigate the “opaque” side of electronic markets by exploring online sellers’ price adjustment patterns over time. More specifically, we identify four questions related to pricing decisions, which lead to hypotheses about how managers determine prices in electronic markets. The paper tests the hypotheses with data from the online computer commodity market. We found, through a simulation analysis, that this market exhibits synchronized price changes, not random changes that are frequently found in traditio…