Exploring Price Elasticity to Optimize Posted Prices in e-Commerce

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Authors

Price dispersion in the Internet has attracted attention from practitioners and academics alike, since it enables companies to adjust prices to a level appropriate to their strategy. This paper demonstrates how Internet retailers can optimize short-term profitability by determining the price elasticity of demand based on empirical price tests. For this purpose visitors of an Internet retailer are divided into subgroups of approximately same size and identical characteristics. Using A-B tests different prices are shown to each subgroup and the conversion rate as a function of price is calculated. We describe the organizational requirements, the technical approach, and the statistical analysis applied to determine the price optimizing the per-order profit. A field study carried out with a large Internet retailer is presented and shows that the company was able to optimize the analyzed price component and thus increase the contribution margin per visitor by about 7%. We conclude that the discussed method could be applied to answer further research questions such as the temporal behavior of demand curves.
Original languageEnglish
Title of host publicatione-Business and Telecommunications
EditorsMohammad S. Obaidat, Joaquim Filipe
Number of pages11
Place of PublicationBerlin, Heidelberg
PublisherSpringer Verlag
Publication date2011
Pages71-81
ISBN (print)978-3-642-20076-2
ISBN (electronic)978-3-642-20077-9
DOIs
Publication statusPublished - 2011
Event6th International Joint Conference on e-Business and Telecommunications - 2009 - Milan, Italy
Duration: 07.07.200910.07.2009
Conference number: 6
http://www.icete.org/ICETE2009/Keynote_Speakers.asp

    Research areas

  • Informatics - Conversion rates, Demand curves, Field studies, Internet retailers, Price dispersion, Price elasticity, Price-elasticity of demand, Research questions, Temporal behavior, Price Discrimination, Contribution Margin

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