A Longitudinal Price Comparison For Music CD's In Electronic and Brick-and-Mortar Markets: Pricing Strategies In Emergent Electronic Commerce


Price Dispersion

How to Cite

Lee, Z., & Gosain, S. (2002). A Longitudinal Price Comparison For Music CD’s In Electronic and Brick-and-Mortar Markets: Pricing Strategies In Emergent Electronic Commerce. Journal of Business Strategies, 19(1), 55–72. https://doi.org/10.54155/jbs.19.1.55-72


The Internet has great potential as a medium to reach consumers but we still
need to improve our understanding of the impact of IT on information asymmetries
governing buyer and seller positions. In this study we are primarily interested
in exploring differences in pricing strategies between physical and electronic
markets, across product categories and over time, and to understand the
reasons for these differences. Choosing a homogenous product - music compact
disks, we compare prices, price dispersion and price dynamics on the Internet
with brick-and-mortar retailers. We collected price information for 21 current hits
and 23 old-hits albums from top five nationally-known brick-and-mortar
CD retailers and nine on-line stores, and repeated the data collection one year
later. Overall, 905 data points, 572 from the Internet and 333 from brick-and-mortar
retail shops were collected. We find that: 1) The Internet market continues
to show price dispersion despite the apparently near zero search costs for
consumers and the growth of market size; 2) Brick-and-mortar markets execute
more consistent and dominant short-term discount strategies for current-hit
albums, and as a result, CD prices for old-hit albums are cheaper in the Internet
market as was found in other studies, but CD prices for current-hit albums in the
physical markets are comparable to prices in the Internet market, and; 3) Price
dynamics alter over time with Internet retailers offering cheaper prices for
albums and apparently employing more frequent and finer price changes. The
results suggest that it is important to look at dynamic price behavior and product
portfolio issues when trying to characterize pricing strategy in this media. We
propose that IT's role in segmenting customers to extract greater consumer
surplus, as well as differences in consumer base and preferences and seller cost
structures and differentiation strategies, need to be carefully examined to explain
price dispersion and dynamic price behavior. 


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