Three essays on e-tailer's pricing, services and customer channel usage in the internet market place

This thesis is composed of three related but independent essays. First, I propose and test a dynamic model of Internet pricing competition based on the differences between the business models of pure and hybrid e-tailers. Pure e-tailers derive all of their revenues from Internet-based retailing while hybrid e-tailers have other value creation opportunities. Pure e-tailers were obligated to build their businesses from scratch while hybrid e-tailers could leverage existing customer relationships to produce on-line revenue. Consequently, pure e-tailers should seek to maximize market share while hybrid e-tailers should focus on short-term profitability due to a number of internal and external factors. During the Internet bull market, these differences in business models and goals should result in a two-tiered pricing structure with pure e-tailers offering substantially lower prices than hybrid e-tailers. Changes in the stock market with respect to the valuation of Internet companies in April 2000 reduced availability of financial resources to implement the “lowest price” strategy favored by pure e-tailers. This reduction of resources should lead to an increase in prices by pure e-tailers and price dispersion is reduced. Second, I empirically test the relationship between e-tailers' price, their pre-purchase and post-purchase service quality. I find that the e-tailers with higher post-purchase service and market leader charge higher prices. Differences in pre-purchase service do not explain the price differences across e-tailers. I find that post purchase service and market leadership are the important factors in explaining price differences. Therefore, these factors are important ways that e-tailers differentiate themselves. Third, I investigate the major factors that determine how much business customers buy online and offline. I segment business customers using their current and intended future online/offline channel usage. By examining the differences across segments with respect to their different perceptions in both online and offline channels, I find that product delivery and pricing are the two major factors influencing customers' channel usage. I also find that changing the perceptions of some segments with respect to online service will be important in growing online commerce.