The influence of pre- and post-purchase service on prices in the online book market

We examine the ability of customer ratings of pre-purchase and post-purchase service to explain price variations in the online book market. In addition, we test whether market leaders leverage their branding advantage by charging higher prices. E-tailer prices were modeled using a market basket of identical books whose posted prices were sampled repeatedly over a 4-month period. Contrary to expectations, posted prices were relatively constant across the time period that included a highly competitive 2000 holiday selling season. E-tailers whose customers were more satisfied with the level of post-purchase service charged significantly higher prices. Differences in satisfaction with pre-purchase service did not explain price differences across all e-tailers. The higher prices of the three market leaders were most likely due to higher satisfaction ratings for both pre- and post-purchase satisfaction. We discuss the implications of these results for managers and academics.