Search on a Business to Consumer Online Market An Explanation for Price Dispersion and Implications to Firm Pricing Strategy
Using bookstore listing information and consumer transaction records from Tmall, the largest online Business to Consumer (B2C) retail platform in China, large and persistent dispersions in both transaction prices and posted prices are observed. No strong evidence is found to support spatial and inter temporal search based purely on price level. Multi dimensional search is proposed due to the following reasons: 1) In a B2C online market, sellers conduct various store level and product level promotions, making price search difficult; 2) previous purchases and consumer reviews define seller reputations and lead to different degrees of competition; 3) while price remains a major factor in consumers' consumption decisions, increasing weight is placed on store attributes when consumers evaluate a listing. Information asymmetry at the product and seller levels lead to an increase in consumer search cost. The search behavior has implications on a firm's pricing strategies. Contrary to the traditional finding that prices decrease as more firms enter the market, there is a non monotonic relationship between the number of firms and prices. A substantial decrease in posted prices is observed when the market moves from a monopoly to duopoly. As the market expands, however, search becomes too costly and sellers are able to charge higher prices.