Brand equity and pricing in electronic markets

This dissertation looks at the impact of electronic markets on retailers' brand equity, and how the reduced brand equity affects retailers' pricing strategies and what kind of pricing patterns will emerge.;Early researchers have envisioned that in electronic markets, the search costs will be low and hence the market will be more competitive and price dispersion will be smaller. However, recent empirical evidences suggest that this may not necessarily be the case.;One source of price dispersion is retailers' brand equity. There are evidences that in electronic markets, consumers have easier access to price and retailer associated quality information and retailers' brand equity is likely to be lower than before, and that brand equity still accounts for a certain degree of price premium charged by branded retailers. The previous studies lack a full account analysis of different degree of brand equity and how that affects pricing strategies. Our paper intends to fill in this research gap.;We analyze a duopoly model with a segment of price-sensitive shoppers and a segment of customers loyal to one of the two brands who demonstrate limited brand loyalty. Our results show that the optimal pricing strategies depend on the strength of brand equity, the size of shoppers and the reservation price. When the reservation price is low enough, both retailers charge the same continuous pricing range, and the same promotional depth. When the reservation price is high enough, the pricing ranges of the two brands overlap, but the strong brand charges a higher maximal and higher minimal price than those of the weak brand. When the reservation price is in the middle, the price range of the weak brand is discontinuous. In the last two cases, the strong brand has a higher (lower) average promotional depth than the weak brand when the shopper population is small (large).;Our paper provides a full account of pricing strategies when firms have different degree of brand equity, especially when the brand equity is small. Our results are especially meaningful and may provide theoretical guidance for the study of online price dispersion.