Fig.1

On the same page?
While the two leading online booksellers, Amazon and Barnes and Noble, are sensitive to pricing, B&N is much more so than Amazon. Extrapolating sales-quantity figures from the sales-based book rankings each outfit lists on its Web site, GSB economist Austan Goolsbee and Yale economist Judith Chevalier found that a 1 percent price increase at B&N reduces sales by 4 percent. The same price increase at Amazon, meanwhile, reduces sales by only 0.5 percent.

Goolsbee, whose research will appear in the June Quantitative Marketing and Economics, has no easy explanation for the large gap. Amazon’s heavy investment in customer loyalty could not be the only answer, he says. Economic theory suggests that even in a monopoly a 1 percent price increase would slash sales by 1 percent—double that of Amazon. Perhaps Amazon prices its books artificially low, Goolsbee speculates, to attract customers who will also buy higher-priced products or who won’t switch when Amazon later raises prices.

—A.B.