Forbes.com: Getting The Price Right
Forbes.com: Getting The Price Right: "Baye teamed up with John Morgan, a professor of economics at the University of California at Berkeley to track the prices of 36 electronics products over a 19-month period using Shopper.com, an online price-comparison service. They found that the seller with the lowest price changed frequently and that the difference between the lowest and highest price could be as much as 60% at any given point in time...Another force in play, Baye says, is consumer loyalty. Once a consumer has had a successful transaction with one vendor, they tend to stick with that vendor, and that creates an incentive on the part of vendors to win them back for repeat business... Baye and Morgan found that firms with a higher reputation than all the other competitors can charge a premium that tops out at 18%. When two firms in a large field of competitors have an equal reputation, the premium that both can charge relative to others falls to about 5% he says. Once there's a third firm in the game with an equal reputation, the premium they can collectively charge begins to evaporate.. Those who win that loyalty, and who get a good reputation as a result, Baye says, tend to get better traffic from consumers and move more goods. And if a firm gets a better reputation relative to competitors selling equal goods, they can charge more, he says...If the cost of information goes to zero, will all firms charge the same low price?" Baye asks. "I think that's true without loyalty, and to that end vendors have invested a lot in building loyalty."
posted by Jen @ 11:57 am
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