ABSTRACT

An Empirical Analysis of Pricing in Electronic Commerce

Hong, Woon Ki

Dept. of Accounting

The Graduate School

Chung-Ang University

Seoul, Korea

Much expectation and speculation surrounds the impact of the Internet on traditional business practices . The Web-based business is now expanding at a growing rate. The rapid growth has been promoted by liberalizat ion and deregulation in the telecommunications sector , improved communication infrastructure, new means of delivering the Internet, and the ever-falling consumer access rate for Internet.

There is, however, little empirical evidence on how prices are set for consumers in the electronic commerce market. This study investigates what kind of factors could possibly explain how pricing is done by virtual malls or e-malls compared to traditional large-scale discount outlets.

In an effort to explore this issue, the electronic shopping prices and the traditional shopping prices were collected for 241 items, and the ratio of Internet price to traditional price for each item was calculated. This ratio became the dependent variable for this inquiry.

The next quest ion is what kind of factors could affect the determination of the relative prices . I gathered for each product consumers reaction to the difference in product quality, the degree of luxuriousness , the sensitivity to price. The magnitude of the products unit price and the products market share were also collected from diverse information sources . These five factors became the independent variables for this study.

In analyzing the relationships between the dependent and independent variables, the correlation analys is and the simple and multiple regression analyses were employed.

The results suggest that 1the price in electronic shopping is not necessarily lower than that of traditional shopping, 2the difference in product quality, the degree of luxuriousness, the sensitivity to price, and the magnitude of the unit price do have explanatory power respectively, and 3the magnitude of the unit price and the market share combined together exhibit the highest explanatory power.

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