Title: Price Dispersion and Loss Leader Pricing: Evidence from the Online Book Industry

Speaker: Xinxin Li, Assistant Professor of Operations and Information Management at the School of Business, University of Connecticut

Time: June 11th, 3:30-5:30pm

Location: Weilun 453

Abstract

In this paper, we develop a theoretical model to analyze the pricing strategies of competing retailers with asymmetric cross-selling capabilities when product demand changes. Our results suggest that retailers with better opportunities for cross-selling have higher incentives to adopt loss leader pricing on high demand products than retailers with low cross-selling capabilities. As a result, price dispersion of a product across retailers rises when its demand increases. The predictions of our model are consistent with the empirical evidence from the online book retailing industry. Using product breadth as a proxy for cross-selling capability, we find that retailers with high cross-selling capabilities reduce prices on bestsellers more aggressively than retailers with low cross-selling capabilities. As a result, price dispersion increases when a book makes to the bestseller list, and the increase is mainly driven by the difference in pricing behavior between retailers with different cross-selling capabilities. Our empirical results are robust against a number of alternative explanations.

Short Bio

Xinxin Li is an Assistant Professor of Operations and Information Management at the School of Business, University of Connecticut. She received her Ph.D. from The Wharton School, University of Pennsylvania. Her research areas include online word of mouth, the economics of information systems, the intersection between information systems and marketing, and firm pricing and competitive strategies. Her work has appeared in Information Systems Research, MIS Quarterly,Journal of Economics & Management Strategies, and Journal of Management Information Systems, among others.