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October 24, 2002 Marketing professor researches online price variations



Sourav Ray

Photo by Andrew Dobrowolskyj

by Brad Hunter

Many consumers are probably familiar with the practice of asymmetric pricing, even if they have never heard the term before.

Asymmetric pricing occurs when retailers raise prices quickly in response to cost increases, but lower prices slowly in response to cost decreases. Only consumers don’t call this asymmetric pricing, they usually call it gouging.

When looking at traditional “bricks and mortar” businesses, the research overwhelmingly suggests asymmetric pricing is common to any sectors of the economy.

When it comes to online businesses, however, there is still a good deal of mystery, said marketing professor Sourav Ray, the lead investigator of an ongoing study on asymmetric pricing in e-commerce.

“In e-commerce, we really don’t know yet if there is asymmetric pricing going on, which is why this study is important,” he said. “E-commerce is presumed to function more efficiently than the traditional channel due to factors such as lower infrastructure costs. However, if asymmetric pricing is occurring and these efficiencies are not passed on to consumers in terms of lower prices, it raises a whole host of questions and issues.”

Ray’s study of asymmetric pricing is part of a larger project, “Harnessing the Web - Inter-action Cycle for Canadian Competitiveness,” which is examining how consumers interact with e-commerce sites. Its findings will be used to recommend ways of improving the competitiveness of Canadian online businesses.

“We’re still lagging behind U.S.-based online retailers,” Ray said. “In fact, many Canadian consumers go to U.S. sites before visiting a Canadian e-commerce site.”

The Social Science and Humanities Council of Canada recently awarded the project a three-year grant of $865,750. Besides Concordia, the research project involves the University of Alberta, the University of Toronto, Dalhousie University and the University of British Columbia, and the Eindhaven University of Technology, in the Netherlands.

Average people and academics view asymmetric pricing differently, Ray said.

“People on the street think prices rise faster than they fall because retailers are simply price gouging,” he said. “On the other hand, if you move to the academic research, there is no economic theory to explain asymmetric pricing,” he continued.

“In fact, theory suggests that there is an incentive for retailers to lower prices, since lower prices attract more customers.”

Ray said his study will examine asymmetric pricing by looking at how the distribution channel works to determine prices for Canadian online retailers. By distribution channel, Ray means the interaction between manufacturers or suppliers, wholesalers, retailers and consumers.

“If asymmetric pricing is taking place, we can examine the distribution channel to determine where and why it’s happening. Suppose we move from the interface between the consumer and retailer and go up the distribution channel to the interface between the retailer and wholesaler.

“Is it the wholesaler who is doing the asymmetric pricing, with the retailer just passing on the wholesale prices they see?”

Ray thinks that his study and the overall project will have a fundamental impact on policy, especially since the study of e-commerce is still very much in its infancy.

“If e-commerce is increasingly how we conduct business in the future, you can see the importance of this project,” he said.

“At this point, we don’t have a very good theoretical understanding of whether e-commerce is fundamentally different from the traditional way of doing business. People have argued that it is, but we still don’t have the theories that can help us understand it.”

The project’s findings are set to be released in August 2005.