Price comparison sites…
Sunday, November 29, 2009
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An interesting discussion out of a random statement at the dinner table last night…
There’s a firm called BetGenius which provides real-time odds comparison services.
Lots of discussion ensued on the effect of perfect information vs imperfect information. Given the surge in price comparison websites in recent years, one would expect the price of bets (or insurance, electricity) to converge to similar levels, as perfect competition predicts.
Apparently, to some extent this has happened, but customer inertia, brand loyalty and shoe leather costs stop perfect convergence (e.g. in the case of placing bets, you can see that another firm is offering better odds for the same bet, but you need to create an account with the other firm, lose potential loyalty points etc so you may still place the bet at worse odds). Similar factors prevent price convergence on e-bay auctions, even when items are listed next to each other.
Indeed, earlier on this year, the New York State Dept of Health’s own drug price comparison site was severely criticised for failing to deliver on many counts, least of all price convergence (there was a $558 price difference for one drug, for example, among pharmacies in New York City).
Furthermore, it turns out that the same betting firm, is likely to offer different odds for the same bet - essentially a form of price discrimination. In this case they price discriminate, by having different odds in different countries, so an England-Australia cricket match would have different odds in the UK for England to win, whilst simultaneously offering different odds in Australia for Australia to win. It makes sense that the price discrimination can occur, due to the degree of market power they possess, but importantly, the successful separation of markets and inability to move between the markets (technically, you cannot bet in Australia without having an Australian bank account), makes the strategy successful to increase their profits.
Incidentally there is a competitor to BetGenius called Oddschecker, so it would be interesting to see how they compete for customers and differentiate their product (I would’ve imagined the market would have natural monopoly characteristics?).
More generally I wonder if they will be part of the OFT’s investigation into online pricing strategies.
And I won’t get into the de-merit nature of gambling...(so that this post doesn’t attract the attention of tutor2u’s corporate social responsibility department).
(Hat-tip to SRD, MH, GRW, TK for their thoughts)
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