In a Position of Competition - Pricing Behavior in an Online Marketplace

Abstract: In times where commerce has shifted into e-commerce, the influence of price comparison websites has become unmistakable. In contrast to previous literature, studying the contemporary effects on demand for retailers in decreasing rankings, we have studied the event from a strategic perspective of pricing. With a unique dataset of more than 20 million observations from the Swedish price comparison site Prisjakt, we provide evidence that retailers are adjusting their prices to retain rank positions in cases where they just recently have experienced a decrease. The frequency of these price adjustments shows a significant decremental effect the further down the rankings we study, thus giving clear indications of a reduced utility of the rank positions. Even though the size of the company appears to be decisive in the magnitude of the price adjustments, it is not possible to distinguish retailers of the different size classes among the highest ranked companies, thus strengthening the belief of a declining marginal benefit of rankings.