Wharton-SMU Research Center

In-House Seminar

Guest Speaker:

Associate Professor of Marketing Teck-Hua Ho
The Wharton School, University of Pennsylvania

Topic:

An Experimental Study of Several Internet Pricing Mechanisms

Chairman:

Associate Professor Augustine H H Tan
Deputy Director, Wharton-SMU Research Center

Venue:

Seminar Room 5,  Singapore Management University, 11 Evans Road, Singapore 259368

Date:

Wednesday, 20 June 2001, at 10.00 am

Reservation:

This seminar is free. Places are limited. Please confirm your attendance by Tuesday, 19 June 2001, 12 noon with Ms. Lim Lih Yeng at lylim@smu.edu.sg or telephone: 822-0197.

About the seminar:

The Internet has opened up a whole host of opportunities for sellers and buyers to experiment with different pricing mechanisms. It has spurred the development of numerous new pricing models where not only sellers post prices (e.g., amazon.com) but also buyers, both statically (e.g., priceline.com) and interactively (ebay.com). Enthusiasts of e-commerce argue that these new pricing mechanisms can dramatically increase efficiency by appropriately matching buyers' willingness-to-pay with sellers' willingness-to-sell. Some industry observers claim that the future of business-to-business and business-to-customer e-commerce will be dominated by buyers posted pricing models while others believe that there is room for several pricing formats to coexist. There is however little empirical evidence to either support or refute these claims. The goal of this study is to evaluate these claims by examining 2 broad classes of pricing mechanisms (buyer or seller posted pricing models) along several economic performance criteria. These criteria include the total social surplus generated by a pricing model and the way it divides this social surplus between the buyers and sellers. We conducted a total of 12 experimental economic markets in which 4 different pricing mechanisms were used to determine the prices of a product. Subjects were motivated by monetary incentives and were paid based on their performance in the markets. Our results show that seller and buyer posted pricing models have about the same total surplus but the latter has the most equitable way of dividing the total surplus between the buyers and sellers. Interestingly, the ability to make price commitment allows a price-setting party (either buyer or seller) to gain a greater portion of the surplus. Sellers posted pricing models tend to lead to higher prices but lower sales volumes than the other pricing models. Finally, we show that subjects' behaviors are often inconsistent with theoretical predictions from Industrial Organization.

About the speaker:

Associate Professor Teck-Hua Ho joined the Wharton faculty in 1997. His previous appointment was with the University of California.

His research areas are in marketing/manufacturing coordination; psychology of strategy; retail management; decision support systems. His current projects are new product development strategy analysis; learning in competitive games, store choice, and shipping basket.

Professor Ho was awarded the George Dantzig Dissertation Award, Honorable Mention, Informs (1994).