On the evolution of monopoly pricing in Internet-assisted search markets

Date: 2013
By: Aurora García-Gallego (LEE & Department of Economics, Universitat Jaume I, Castellón, Spain)
Nikolaos Georgantzis (GLOBE & Economics Department, University of Granada, Spain)
Ainhoa Jaramillo-Gutiérrez (EriCes & Dpt. of Applied Economics, University of Valencia, Spain)
Pedro Pereira (Autoridade da Concorrência and CEFAGE-UE, U. of Evora, Portugal)
J. Carlos Pernías-Cerrillo (Economics Department, Universitat Jaume I, Castellón, Spain)
URL: http://d.repec.org/n?u=RePEc:jau:wpaper:2013/05&r=net
We study the evolution of prices in markets assisted by price-comparison engines. We use laboratory data obtained under two industry sizes and two conditions concerning the sample (complete, incomplete) of prices available to informed consumers. Distributions are typically bimodal. One of the two modes, corresponding to monopoly prices, tends to increasingly attract prices over time. The second one, corresponding to interior prices, presents a decreasing trend. Monopoly pricing can be used as an insurance against more competitive (but riskier) behavior. In fact, subjects earning low profits due to interior pricing in the past are more likely to choose monopoly pricing.
Keywords: Internet Economics, price-comparison search engines, mixed strategy equilibria, experimental economics