Negative price premium effect in online market - The impact of competition and buyer informativeness on the pricing strategies of sellers with different reputation levels

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review

24 Scopus Citations
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Author(s)

  • Yuewen Liu
  • Juan Feng
  • Kwok Kee Wei

Related Research Unit(s)

Detail(s)

Original languageEnglish
Pages (from-to)681-690
Journal / PublicationDecision Support Systems
Volume54
Issue number1
Publication statusPublished - Dec 2012

Abstract

Motivated by the contradictory findings in literature regarding whether high-reputation sellers enjoy a price premium over low-reputation sellers, this paper examines the pricing strategies of sellers with different reputation levels. We find that a negative price premium effect (i.e., a high-reputation seller charges a lower price than a low-reputation seller) exists due to: (1) the presence of both informed and uninformed buyers, which makes sellers follow mixed pricing strategies. It is then possible for a high-reputation seller setting a lower price than a low-reputation seller. Moreover, when the proportion of informed buyers exceeds a certain threshold, the expected price of a high-reputation seller is even lower than that of a low-reputation seller; (2) the competition among the sellers, which reduces the high-reputation sellers' prices but increases the low-reputation sellers' prices. Consequently, a high-reputation seller is more likely to charge a lower price than a low-reputation seller when the competition intensifies. Our empirical findings also support our theoretical results on the negative price premium effect. © 2012 Elsevier B.V. All rights reserved.

Research Area(s)

  • Buyer informativeness, Competition, Negative price premium effect, Pricing strategy, Seller reputation

Citation Format(s)

Negative price premium effect in online market - The impact of competition and buyer informativeness on the pricing strategies of sellers with different reputation levels. / Liu, Yuewen; Feng, Juan; Wei, Kwok Kee.

In: Decision Support Systems, Vol. 54, No. 1, 12.2012, p. 681-690.

Research output: Journal Publications and Reviews (RGC: 21, 22, 62)21_Publication in refereed journalpeer-review