Image Effects and Rational Inattention in Internet-Based Selling

Dongwon Lee, Robert J. Kauffman, and Mark E. Bergen
International Journal of Electronic Commerce,
Volume 13, Number 4, Summer 2009, pp. 127.

Abstract: The frequency of occurrence of certain price points in Internet-based selling is investigated in order to determine what drives the observed regularities and variations. Theories based on consumer perceptions of price and quality images, and on rational inattention to price-endings are explored by specifying and testing empirical models for price-endings using more than 1.5 million daily observations on multiple product categories sold by 90 Internet-based retailers collected over a two-year period. The results show that a firm’s on-line reputation and relative price levels affect the price-endings chosen in different product categories, and that 9-ending prices increase consumer purchases. These findings support an image theory of store quality and price. The use of 9-ending prices varies across Internet selling formats in a way consistent with differences in the rational attentiveness these channels engender in consumers. This research on the role of information technology in price-setting provides insights for marketers who wish to optimize price-setting decisions in the competitive environment of Internet retailing.

Key Words and Phrases: Image effects, Internet-based selling, 9-ending prices, price points, rational inattention, strategic pricing, technology impact.