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As shown in Table 1, the actual pricing strategy for these items shows a wide dispersion. (3) We did our own survey of the pricing of a small subset of popular products. study four prevalent pricing strategies for a monopolist under varying degree of autonomy for the Internet channel and find through a detailed computational study that an identical pricing strategy may indeed be very close to the optimal. Their results, based on an analysis of 13,270 price quotes, show that when posted prices are considered, traditional retailers have the highest prices, followed by multichannel retailers, and pure-play e-tailers. Ancarani and Shankar develop hypotheses on how prices and price dispersion compare among pure-play Internet, bricks-and-mortar, and bricks-and-clicks retailers and test them through an empirical analysis. Tang and Xing find that the price charged by pure e-tailers for DVD titles is 14% lower than those charged by e-tailers with traditional channels.

Further, the prices charged by pure e-tailers and e-tailers with traditional channels may be different. Brynjolfsson and Smith indicate that prices of books and CD’s were 9–16% lower on the Internet than in traditional stores. This is further validated by the empirical findings of researchers. The survey also indicated that the majority of customers expect to find lower prices online. This enabled the firm to capture a share of the Internet friendly customers.

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(1) A survey by Ernst and Young reported that nearly two-thirds of companies price products identically for their online and offline operations. Our motivation for this research came from multiple different sources. On the other hand, Barnes and Noble, a book retailer, decided to create an independent unit for Internet operations that essentially competed with the traditional retail store. However, on adoption Best Buy decided to treat the customers of the online and physical stores in an identical manner. For example, Best Buy, an electronics retailer, was quite slow to adopt the Internet channel. Retailers that have faced this issue in the last few years have taken different courses of action. The introduction of an Internet channel poses two important questions – the degree of independence of the Internet channel and the pricing of goods across the two channels. In such a setting, it is important for the firm to provide the right control and pricing across the two channels.

For example, a retailer such as Best Buy that was primarily selling products through the traditional channel, decides to sell products through the Internet channel as well. In this paper, we study the pricing strategies for a retailer which sells a product through two channels. While it provides an opportunity to attract more customers and improve sales by attracting customers who would have otherwise not bought the product, it could also threaten existing channel relationships through possible cannibalization. The Internet has provided a new avenue to sell products to consumers.

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