Using Online Competitor´s Inventory Information for Pricing

Information displayed on an e-commerce site can be used not just by the intended customers but also by competitors. In the paper, we examine the effect of such proactive information use in the setting of e-commerce retailing where duopoly e-tailers set their prices of a commodity that is in short supply. While e-tailers enhance their service quality by making stockout information available online, that inventory information could also be used by competitors to determine their prices. Each e-tailer can launch software agents to detect its competitor´s inventory position and make its price decision contingent on that position. We show that when customer reservation value is relatively high, and e-tailers do not resemble each other in terms of fill rate, both e-tailers choose to adopt the software agent technology and price dynamically at equilibrium. The high availability e-tailer can charge higher prices and enjoy a higher profit level than the low availability e-tailer. More customers prefer to visit the high fill rate e-tailer first under the dynamic pricing scheme than under the static pricing scheme. Because total search costs are reduced, social welfare is improved under the new dynamic pricing scheme