Leaving the Tier: Asymmetry in Pricing Patterns in Online High Tech Shops

Using simulation and empirical analysis, we examine asymmetry in pricing patterns within high-tech markets, where market leaders lead in both price increases and decreases. We examine 475,866 prices and 51,260 price changes for 810 high-tech products from 26 vendors over 283 days. We show that price premiums exist for the market leaders, but these leaders also engage in aggressive price decreases where market followers are unable or unwilling to competitively rsespond. Surprisingly, we show that large price premiums and market power can motivate a market leader to abandon high price premiums since capturing the entire market at a lower price can lead to greater profits. This research adds to the discussion of market friction and tiers by demonstrating that, in high-tech industries, drastic price cuts from market leaders that go beyond barriers to entry and loss leading can be profit maximizing.