E-Commerce – First-Mover Advantage

Now it’s official: Strong market positioning means price-setting power in online sales. That’s the word from an April 2003 study on the effects that price changes had on the online book sales of rivals Amazon.com and Barnesandnoble.com.

The study’s authors, economics professors Austan Goolsbee of the University of Chicago Graduate School of Business and Judith Chevalier of the Yale School of Management, collected data in 2001 using publicly available price and sales ranking data on both sites.

They found that Amazon.com’s position of market dominance meant it could charge higher prices for books. A 1 percent price increase reduced sales by 0.5 percent at Amazon.com, but the same percentage price hike at bn.com cut sales by 4 percent, the study found.

“One can only think that if you lack any brand identity, that it’s even worse. That if you raise your prices just a small amount, you lose a tremendous amount of business, and it suggests that a guy without a brand identity faces a pretty tough situation in the online environment,” Goolsbee says.