More reasons why online mass merchandisers are category killersOne of the great pleasures for book lovers of all ages is the opportunity to settle into a comfortable armchair amid the stacks of an expertly curated bookstore and peruse the pages of possible purchases. It’s an old story already that those opportunities are disappearing as online mass merchandisers crowd out independent bookstores. The meticulously analyzed data in a recent research study adds more chapters to that history. In the study, “Pricing Best Sellers and Traffic Generators: The Role of Asymmetric Cross-selling,” Professors Cenk Kocas of Istanbul’s Sabanci University, Koen Pauwels of Northeastern University, and Jonathan D. Bohlmann of North Carolina State University set out to understand how profit-maximizing online retailers should price items that are potential traffic generators in a competitive market. Their analysis of how Amazon prices books, using both game theory and empirical data, illustrates with exquisite precision the rather subtle dynamics that enable multi-product online retailers like Amazon and Walmart to undercut smaller merchants and how their pricing strategies across the board are even more effective due to the depth and breadth of their other offerings. Kocas notes, “Although our work uses data on books, the model in general is not book-specific, and applies to all categories where products can be identified uniquely and hence be price-compared.” Movies, toys, games, and music are other examples.
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