Leaving the tier: An examination of asymmetry in pricing patterns in online high tech shops

Abstract

We analytically illustrate that maximizing profit in a market with products that quickly degrade in price motivates market leaders to make both aggressive price increases and decreases that exceed that of the market followers, flipping between attempts to capitalize on their brand name and using capturing a large majority of the market. We examine 475,866 prices and 51,260 price changes for 810 high-tech products from 26 vendors over 283 days and show that a price premium does exist for the market leaders, implying a marginal revenue advantage, but aggressive price increases and aggressive price decreases are made by market leaders, and how market followers are unable or unwilling to competitively respond to these price changes. This research adds to the discussion of market friction, tiers, and market leaders by showing how market leaders may be motivated to drastically cut prices cuts, and how such price cuts can be profit maximizing. © 2013 Springer-Verlag Berlin Heidelberg.