Price competition in the presence of a web aggregator
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In this paper we examine the impact of a web aggregator on firms and consumers in a horizontally differentiated market. When a firm pays a fee to be listed on the aggregator’s website, its location and price become observable to e-users (consumers who visit the website). We consider two settings, depending on the possibility for online firms to offer discounts to e-users. In equilibrium, not all firms will go online—some will choose to remain offline. Online firms attract more customers due to the higher level of information, but face a tougher price competition. When the proportion of e-users is relatively low, price discrimination may hurt the firms. Therefore, less of them can afford to go online. The opposite holds when e-users predominate; price discrimination yields a higher number of online firms than uniform pricing. Finally, we evaluate the aggregator’s optimal policy regarding the fee and whether to impose uniform pricing or to allow price discrimination. We discover that, unless the proportion of e-users is relatively low, the aggregator induces only a few firms to go online.
KeywordsOnline reviews aggregators Price discrimination Competition
JEL ClassificationC72 D43 D61 L11 L13 M31
We are grateful to the Editor Giacomo Corneo and to an anonymous referee for very useful comments. We are also thankful to Paul Belleflamme, Joan Calzada, Luca Lambertini, Jose L. Moraga-Gonzalez, Francisco Ruiz-Aliseda, Tommaso Valletti, and the audience at WEAI (Western Economic Association International) 2015, SIE (Società Italiana degli Economisti) 2015, University of Memphis, and CORE@50 (Louvain-la-Neuve, 2016) for precious suggestions and discussion. We thank Lucy Scioscia for editorial assistance. The usual disclaimer applies.
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