Adjusting Prices in the Long-tail: The Role of Competitive Monitoring

By: Ayelet Israeli and Eric Anderson

Format:Print
| Language:English

Abstract

Most e-commerce retailers offer a long-tail of very low demand products. Individually, these items may have low sales but collectively they are critical to the overall e-commerce business model. Because of their minimal sales, pricing is a constant challenge. The academic literature has considered price exploration as a primary source to inform price adjustments, but this approach is impractical in low demand situations. In this paper, we show that monitoring competitor prices leads to price adjustments and is associated with future demand and revenue among long-tail products. As demand signals are sparse in the long-tail, we find that monitoring the largest competitor leads to substantial price adjustments and sales. Further, we show that past monitoring of competitors' prices is associated with more future demand than high frequency price exploration among long tail products.