The internet has the potential to affect the price companies charge. More competition from other firms selling online will in theory force prices lower. Lower search costs through price comparison sites should also make it harder for firms to charge much more than their competitors. This is a key question for businesses: how should I set my price.

A good but slightly technical reference is Ellison, Glenn and Sara Fisher Ellison. 2005. "Lessons about Markets from the Internet." The Journal of Economic Perspectives, Vol. 19, No. 2. (Spring, 2005), pp. 139-158.

See price comparison sites

Pricing Strategies

Two pricing strategies commonly used include:

  • Versioning: selling different versions at different prices
  • Switching costs: get pricing power by making it difficult for customers to switch to a competitor e.g. free trial version

Another key question: should the business post prices online or not?

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