Pricing on the Internet and in conventional retail channels: A study of over-the-counter pharmaceutical products

Business-to-consumer (B2C) electronic commerce survived the near-disastrous dot.com market crash in March of 2000 and has emerged as an integral component of doing business. Studies conducted before 2000, when companies had little experience with e-commerce, found that there were differences in pricing strategies and search and menu costs between the Internet and the conventional (brick-and-mortar) channel of distribution. The present study examines pricing data collected during a more mature period when companies routinely used both channels to sell products. The study utilizes data from the Internet and from conventional retailers for a bundle of over-the-counter pharmaceutical products. It finds that prices but not total cost are lower on the Internet, and therefore that shopping for such products on the Internet is likely to be a convenience issue. It also finds, contrary to expectations, that price changes are not more frequent or smaller on the Internet than on the conventional channel, whereas cost and price dispersion are greater. Finally, it discusses the pricing strategies of stores that have both Internet and conventional channels.