Internet firms charge a wide range of prices for homogeneous products, and high-priced firms remain high-priced and low-priced firms remain low-priced over long periods. One explanation is that high-price firms are charging a premium for superior service. An alternative, price-dispersion explanation is that firms vary the prices for informed and uniformed consumers (Salop and Stiglitz, 1977) or serious shoppers and others (Wilde and Schwartz, 1979). The pricing pattern for a digital camera and a flatbed scanner is consistent with the price-dispersion model and inconsistent with the service-premium hypothesis.
Review of Industrial Organization – Springer Journals
Published: Oct 13, 2004
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