Premium Essay

An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information

In: Business and Management

Submitted By Nitishce
Words 12591
Pages 51
An Empirical Study of Pricing Strategies in an Online Market with High-Frequency Price Information

Sara Fisher Ellison M.I.T.

Christopher M. Snyder Dartmouth College

June 2010

Abstract: 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 and 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.

JEL Codes: L11, C73, D21, L81

Contact Information: Ellison: Department of Economics, M.I.T., 50 Memorial Drive, Cambridge, MA 02142; tel. (617) 253-3821; fax. (617) 253-1330; email Snyder: Department of Economics, Dartmouth College, 301 Rockefeller Hall, Hanover, NH 03755; tel. (603) 646-0642, fax. (603) 646-2122, email

Acknowledgments: The authors are grateful to Hongkai Zhang for superb research assistance and to Glenn Ellison for a number of useful conversations.

1. Introduction
There is a vast and rich theoretical literature on the dynamics of repeated games. One conclusion of this literature is that many different market outcomes are possible. Full collusion, collusion on a focal price, cyclical markup patterns, and prices exactly tracking costs, are among the possibilities. This lack of a clear theoretical prediction suggests an important role for empirical

Similar Documents

Premium Essay


...High-Frequency Trading Peter Gomber, Björn Arndt, Marco Lutat, Tim Uhle Chair of Business Administration, especially e-Finance E-Finance Lab Prof. Dr. Peter Gomber Campus Westend • RuW P.O. Box 69 • D-60629 Frankfurt/Main Commissioned by Executive Summary High-frequency trading (HFT) has recently drawn massive public attention fuelled by the U.S. May 6, 2010 flash crash and the tremendous increases in trading volumes of HFT strategies. Indisputably, HFT is an important factor in markets that are driven by sophisticated technology on all layers of the trading value chain. However, discussions on this topic often lack sufficient and precise information. A remarkable gap between the results of academic research on HFT and its perceived impact on markets in the public, media and regulatory discussions can be observed. The research at hand aims to provide up-to-date background information on HFT. This includes definitions, drivers, strategies, academic research and current regulatory discussions. It analyzes HFT and thus contributes to the ongoing discussions by evaluating certain proposed regulatory measures, trying to offer new perspectives and deliver solution proposals. Our main results are: HFT is a technical means to implement established trading strategies. HFT is not a trading strategy as such but applies the latest technological advances in market access, market data access and order routing to maximize the returns of established trading strategies. Therefore...

Words: 30328 - Pages: 122

Premium Essay

Hll Projecshaktio

...Asia Pacific Journal of Marketing & Management Review__________________________________________ ISSN 2319-2836 Vol.2 (6), June (2013) Online available at FACTORS AFFECTING PURCHASE DECISION OF CARPENTERS FOR LAMINATES UMA SHANKAR SINGH*; SRITAM KUMAR PADHI** *PH.D. (FULL TIME RESEARCH SCHOLAR) INSTITUTE OF BUSINESS AND COMPUTER STUDIES SIKSHA „O‟ ANUSANDHAN UNIVERSITY BHUBANESWAR, ODISHA, INDIA **MBA INSTITUTE OF BUSINESS AND COMPUTER STUDIES SIKSHA „O‟ ANUSANDHAN UNIVERSITY BHUBANESWAR, ODISHA, INDIA _____________________________________________________________________________________ ABSTRACT The main reason to conduct this study is to find out the factors which compel or attract a carpenter to choose a laminate or veneer for his clients. This project report is revealing the state of mind of the carpenters with the changing environment. How the carpenters reacted with the change in customer preference and with the introduction of a large number of companies dealing with laminates and veneers. To know this a survey conducted using a structured questionnaire containing the items which helped in obtaining the desired information from the carpenters. Carpenters were approached targeted the capital city Bhubaneswar of Odisha state in India The aim and motive of carrying this project is to know about the brand awareness and consumer preference for laminates. The objective of this research is to find out the foremost factors...

Words: 4475 - Pages: 18

Premium Essay

Integratedd Marketing Communication

...success. The fast growth of fast food industry in the Philippines led some observers to say that we are now on the burger generation. Integrated Marketing Communication (IMC) is an approach to brand communication where the different modes work together to create a seamless experience for the customers and are presented with a similar tone and style that reinforces the brands core message. Its goal is to make all aspects of marketing communication such as advertising, sales promotion, public relations, direct marketing, personal selling, online communication and social media work together as unified force, rather than permitting each to work in isolation, which maximize their cost effectiveness (Clow and Baack, 2006). Marketers believe that quality products may not sustain its sales unless appropriate marketing communication is employed. Thus, IMC has been conceptualized to explore all the means in order to reach every member of the target market. For IMC to work well, it requires a lot of planning and right timing for its implementation. Food establishment like McDonalds utilize IMC to attain a variety of objectives. McDonald offer a pleasant alternative to eating where in one can choose any variety of foods and offers a well prepared hot meal which is ready to eat. It give advantages to those people who do not have the ability, time or will to cook at home. As of now, McDonald continues applying the Integrated Marketing Communication (IMC) in developing new products or promotions...

Words: 11797 - Pages: 48

Premium Essay

Strategic Marketing

...also affected by several macro-level and socio-economic factors such as rising oil prices, contagious crisis, concerns about the eruption of bird flu, Asian tsunami, etc. (International Air Transport Association, 2007). Vietnam Airlines (or VNA) which was originally established in 1956 under the name Vietnam Civil Aviation is the largest full-cost airline in Vietnam (CAPA – centre for Aviation). With a 40.6% market share, Vietnam Airlines has a tremendous opportunity in expanding their business for both domestic and international network in tourism industry. According to CAPA, with the investment in new aircraft and flight network, Vietnam Airlines desires to become the second largest full-cost airline in Southeast Asia by the year 2020. To implement this expectation, Vietnam Airlines should have overall information of the company to set up the suitable marketing strategy in the next period. Internal Analysis As the first corporation in civil aviation industry in Vietnam with the government assistance, Vietnam Airlines has its own strengths. However, weaknesses are inevitable in any organization including Vietnam Airlines. Strengths Obviously, many state-own companies have advantages in operations due to the support from the government, so as Vietnam Airlines. With a long time in this industry, Vietnam Airlines is considered as a traditional airline and a strong brand in domestic market. In people’s mind, it is an experienced and reliable local airline in service quality...

Words: 3880 - Pages: 16

Premium Essay


...Retailing in the 21st Century Manfred Krafft ´ Murali K. Mantrala (Editors) Retailing in the 21st Century Current and Future Trends With 79 Figures and 32 Tables 12 Professor Dr. Manfred Krafft University of Muenster Institute of Marketing Am Stadtgraben 13±15 48143 Muenster Germany Professor Murali K. Mantrala, PhD University of Missouri ± Columbia College of Business 438 Cornell Hall Columbia, MO 65211 USA ISBN-10 3-540-28399-4 Springer Berlin Heidelberg New York ISBN-13 978-3-540-28399-7 Springer Berlin Heidelberg New York Cataloging-in-Publication Data Library of Congress Control Number: 2005932316 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer-Verlag. Violations are liable for prosecution under the German Copyright Law. Springer is a part of Springer Science+Business Media ° Springer Berlin ´ Heidelberg 2006 Printed in Germany The use of general descriptive names, registered names, trademarks, etc. in this publication does not...

Words: 158632 - Pages: 635

Premium Essay

Online Supermarkets

...Online Supermarkets: Emerging Strategies And Business Models In The UK Irene Yousept, Feng Li University of Newcastle upon Tyne Business School, United Kingdom, Feng.Li@nc, Abstract The Internet has facilitated the emergence of new strategies and business models in several industries. In the UK, significant changes are happening in supermarket retailing with the introduction of online shopping, especially in terms of channel development and coordination, business scope redefinition, the development of fulfilment centre model and core processes, new ways of customer value creation, and online partnerships. In fact the role of online supermarket itself has undergone some significant changes in the last few years. Based on recent empirical evidence gathered in the UK, this paper will illustrate current developments in the strategies and business models of online supermarket retailing. The main evidence has been collected through an online survey of 6 online supermarkets and in-depth case studies of two leading players. Some of the tendencies are comparable to what happened in retail banking with the introduction of Internet banking, but other tendencies are unique to the supermarket retailing industry. This is a rapidly evolving area and further studies are clearly needed. 1 Introduction The Internet has facilitated the emergence of new business models in several industries. Previous research has revealed that the integrated models of...

Words: 10246 - Pages: 41

Premium Essay

Brand Switching

...Center for Information and Network Economics Munich Graduate School of Economics September 2004 Preliminary version, Comments are welcome Abstract In this paper I estimate the magnitude of switching costs in the UK mobile industry. Using a survey data with individual choices of network operators in two consecutive years I find a presence of very strong average switching costs, which make the majority of consumers reluctant to switch networks. The size of average switching costs differs significantly across networks and the observed switching may be due to heterogeneous switching costs across consumers. The willingness to switch networks depends to some extend on consumer’s characteristics. Keywords: mobile telephony, switching costs, discrete choice. JEL Classification: C25, D12, L96 ∗ I would like to thank Volkswagen Stiftung and Munich Graduate School of Economics for the generous financial support which made this research possible. All errors are mine. 1 1 Introduction The presence of switching costs has a critical impact on the consumers’ behavior and firms’ strategies in many industries. The anticompetitive effects of switching costs are of major concern for the regulators. Therefore, the identification and measurement of the magnitude of switching costs should provide important information for the regulators. In particular, the mobile telephony may be subject to very high consumers’ switching costs, which I want to look into in this study. The costs...

Words: 10238 - Pages: 41

Premium Essay

Pricing- Case Study- Ozone Generators

...for your customer. Course: ISM 13 Module 3 Pricing Authors: Blume, Anna 900711 Collu, Giulia 850511 Tutor & Examiner: Hand in date: 1 Caesar, Peter 15-01-15 Primozone Abstract This paper is aimed at providing a comparison of the total cost of owner ship (TCO) of two comparable products through the tool of a lifecycle cost analysis (LCCA). The compared products are ozone generators from Primozone and Ozonia. Firstly the importance of pricing is presented followed by the discussion of the four most common pricing approaches and the best pricing method according to literature to achieve high margins is introduced. The described topics will be explained in detail in the theoretical framework followed by a comprehensive description of how value based pricing can be put into practice through economic value analysis and quantification and be therefore used as sales arguments based on the LCCA presented in Appendix A. The parameters for the LCCA were chosen with the help of the head of sales of Primozone, Jürgen Bischhaus. The collected data are presented in Chapter 4 and implemented into the excel spreadsheet in Appendix A. Several changing parameter scenarios were applied with the result that Primozone outperforms Ozonia in each of them except energy consumption, which are marginally higher, but not significantly. This also results in the ability for Primozone to charge a higher price compared based on its economic value. In Appendix...

Words: 16342 - Pages: 66

Free Essay

Mobile Telecom Market Definition

...Literature Review 2 2.1. An Overview of Mobile Telecom 2 2.1.1. Mobile Telecom market definition 2 2.1.2. Telecom in Vietnam 2 2.2. Consumer Choice 3 2.3. Variables of Customer Choice 3 2.3.1. Call quality 3 2.3.2. Price structure 4 2.3.3. Convenience 5 2.3.4. Sales promotion 6 2.3.5. Advertising 7 2.3.6. Reliability 8 2.4. Theoretical Research Model 8 2.5. Hypothesis 8   2. Literature Review This chapter presents the literature review. It divided into three parts. In the first section, an overview of telecommunications is described, that is, the general definition of telecommunications, then the growing of subscriptions in Vietnam is stated. Secondly, the study will discuss about the customer choice and its previous studies. Finally, the antecedents of customer choice in this study are discussed. 2.1. An Overview of Mobile Telecom 2.1.1. Mobile Telecom market definition The mobile telecom market is a type of service industry in which customers place much importance not only on how they are served (functional quality), but also and more importantly, on outcome or nature of services they receive and experience which constitute technical quality variables like network quality (Wang & Lo 2002; Gi-Du and James 2004). Mobile communications markets can be divided by the type of services provided and by the telecommunications networks used for production into the sub-markets for cellular radiotelephony, paging, trunked mobile radio access, and satellite services...

Words: 5196 - Pages: 21

Free Essay

Herd Behavior

...THE JOURNAL OF FINANCE • VOL. LVI, NO. 4 • AUGUST 2001 Investor Psychology and Asset Pricing DAVID HIRSHLEIFER* ABSTRACT The basic paradigm of asset pricing is in vibrant f lux. The purely rational approach is being subsumed by a broader approach based upon the psychology of investors. In this approach, security expected returns are determined by both risk and misvaluation. This survey sketches a framework for understanding decision biases, evaluates the a priori arguments and the capital market evidence bearing on the importance of investor psychology for security prices, and reviews recent models. The best plan is . . . to profit by the folly of others. — Pliny the Elder, from John Bartlett, comp. Familiar Quotations, 9th ed. 1901. IN THE MUDDLED DAYS BEFORE THE RISE of modern finance, some otherwisereputable economists, such as Adam Smith, Irving Fisher, John Maynard Keynes, and Harry Markowitz, thought that individual psychology affects prices.1 What if the creators of asset-pricing theory had followed this thread? Picture a school of sociologists at the University of Chicago proposing the Deficient Markets Hypothesis: that prices inaccurately ref lect all available information. A brilliant Stanford psychologist, call him Bill Blunte, invents the Deranged Anticipation and Perception Model ~or DAPM!, in which proxies for market misvaluation are used to predict security returns. Imagine the euphoria when researchers discovered that these mispricing proxies...

Words: 33427 - Pages: 134

Premium Essay


...welcomed my opinions. Furthermore, she used her professional knowledge to provide good suggestions for my study. I also want to give thanks to Cao Wen and He Mengdi who help me to conduct and test the questionnaires. Thanks to Qin Ziyin who always discussed with me the research and gave her advice. I want to thank all my friends who support me during the whole writing process. Most importantly, THANKS TO MY PARENTS! Vaasa, Finland 05.06.2012 Zhang Yu 3 VAASAN AMMATTIKORKEAKOULU UNIVERSITY OF APPLIED SCIENCES International Business ABSTRACT Author Title Zhang Yu Improving Customer-Based Brand Equity: On-line and Off-line Programs for B2C Company. Case Company: VANCL 2012 English 88 + 9 Appendices Åsa Lillhannus Year Language Pages Name of Supervisor The objective of this research was to study the short-term process of building customer-based brand equity in the on-line shopping industry and provide managerial suggestions for Vancl to improve its customer-based brand equity. In order to achieve the main aim, the following sub research problems based on theoretical study were separately set. First, how do audiences feel about Vancl’s brand elements? Second, what is the attitude and experiences of customers towards Vancl’s products, price and distribution channels? Third, what kind of marketing communication tools does Vancl use in spread its brand? The theoretical study applied the brand awareness and brand association of customer-based brand equity as proposed by Kevin...

Words: 20941 - Pages: 84

Premium Essay


...July-December, 2010 Online Marketing in Bangladesh: A Descriptive Study in the Context of Some Selected Click and Mortar Businesses MD. KAMRUL HASSAN1 MD. ABDUL MOMEN2 SEYAMA SULTANA3 Abstract Every business requires a good marketing mix to introduce, grow, and sustain in this highly competitive marke economyt. At The day before yesterday marketers were rarely looking at online based marketing efforts, instead, they were just relaying on conventional marketing mix. With the presence of highly growing Internet users, relative low cost and easy going strategies, ‘online marketing’ is also becoming so crucial for every business hub. By getting the balance of offline and online advertising right, marketing mix will help provide everything firms need to gain leads, increase sales, improve customer retention, and rocket the company profits. The study has a comprehensive perspective and provides a bird’s eye view of the online marketing practice in Bangladesh. This discussion is extended with an examination of the studies that compare conventional marketing practices with the principles and rules of the online marketing world particularly the four major components of the traditional marketing mix in an online context. To understand the online marketing environment in the country a greater sense of the study has extended its overall views from both the consumers and business perspectives. This study provides an effort to understand the relationship between online marketing exercise...

Words: 6225 - Pages: 25

Premium Essay

Balanced Score Card

...which the ego guides the libidinal energies of the id and the moralistic demands of the superego accounts for the rich variety Harold H. Kassarjian Journal of Marketing Research Vol. 8, No. 4 (Nov., 1971), pp. 409-418 Personality and Consumer Behavior: A Review Abstract This article reviews the current literature in the fields of consumer behaviour and the marketing of services in order to examine the main issues facing the consumer in purchasing services, as opposed to goods. Five distinguishing characteristics of services are discussed and the implications of these for the consumers are placed within the information processing model of consumer behaviour theory. The article suggests that there are particular problems for consumers in acquiring effective information regarding services, making comparisons on the basis of that information and subsequently evaluating the service encounter. It is our contention that unless consumer responses to the particular problems associated with services are clarified, service...

Words: 5096 - Pages: 21

Free Essay


...September, 2010 Available online at ISSN 1993-8233 ©2010 Academic Journals Full Length Research Paper Determinants of consumer retention in cellular industry of Pakistan Jawaria Fatima Ali1, Imran Ali1,2*, Kashif ur Rehman2, Ayse Kucuk Yilmaz3, Nadeem Safwan4 and Hasan Afzal5 1 Department of Management Sciences, COMSATS Institute of Information Technology, Lahore Pakistan. 2 IQRA University Islamabad, Pakistan. 3 Department of Aviation Management, School of Civil Aviation, Anadolu University, Eskisehir, Turkey. 4 FUIEMS, Foundation University Islamabad, Pakistan. 5 Independent Researcher, Hong Kong. Accepted 9 June, 2010 Cellular industry of Pakistan has grown many folds in recent years. Many new entrants have also joined the market to reap the potentials of this growing industry. This situation has originated a hyper competition among major cellular service providers in Pakistan. Companies are working hard to introduce more innovative and eye-catching products to attract customers. The companies with large consumer base are striving to reduce their switching costs. However the main concerns of the cellular service providers is to retain the existing customers. This research is designed to find out the determinants of consumer retention in cellular industry of Pakistan. This is an exploratory study based on primary data which was collected from University students of Pakistan. The study found user friendliness, price reasonability and...

Words: 4907 - Pages: 20

Premium Essay

Fx Spot Trading

...Management from A Market Maker’s Perspective by Mu Yang A thesis presented to the University of Waterloo in fulfilment of the thesis requirement for the degree of Master of Quantitative Finance Waterloo, Ontario, Canada, 2011 c Mu Yang 2011 Author’s Declaration I hereby declare that I am the sole author of this thesis. This is a true copy of the thesis, including any required final revisions, as accepted by my examiners. I understand that my thesis may be made electronically available to the public. ii Abstract Due to the rapid development of computing technology and faster growth of financial industry, Foreign Exchange high-frequency trading has become substantially more prominent to today’s market players, especially to bankers and market makers. This research aims at introducing today’s FX high-frequency trading structure and discussing how a market maker can effectively reduce downside risk when market faces a huge upward or downward stress. An Exponential Moving Average operator is introduced and implemented using a Matlab software for tick-by-tick data analysis. Simulation framework for market high-frequency data and client trading flow is also introduced and implemented using the Matlab software. Real-time P&L calculation is introduced and used to determine the performance of a proposed risk hedging strategy. On the other hand, due to the financial crisis we experienced in 2007, 2008, and 2009, we analyze the tail risk of foreign exchange market. Extreme Value...

Words: 19430 - Pages: 78