Search and Product Differentiation at an Internet Shopbot

Price dispersion among commodity goods is typically attributed to consumer search costs. We explore the magnitude of consumer search costs using a data set obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $2.24 while the cost of an exhaustive search of the offers is a maximum of $2.03. Interestingly, in our setting, consumers who search more intensively are less price sensitive than other consumers, reflecting their increased weight on retailer differentiation in delivery time and reliability. Our results demonstrate that even in this nearly-perfect market, substantial price dispersion can exist in equilibrium from consumers preferences over both price and non-price attributes

[1]  John Morgan,et al.  Persistent Price Dispersion in Online Markets , 2006 .

[2]  D. Kuksov.  Buyer Search Costs and Endogenous Product Design , 2004 .

[3]  Glenn Ellison,et al.  Search, Obfuscation, and Price Elasticities on the Internet , 2004 .

[4]  Peter S. Fader,et al.  On the Depth and Dynamics of Online Search Behavior , 2004, Manag. Sci..

[5]  Ramayya Krishnan,et al.  Designing a Better Shopbot , 2004, Manag. Sci..

[6]  S. Dhami.  ECONOMICS OF INFORMATION , 2004 .

[7]  J. Chevalier,et al.  Measuring Prices and Price Competition Online: Amazon.com and BarnesandNoble.com , 2003 .

[8]  Erik Brynjolfsson,et al.  Consumer Surplus in the Digital Economy: Estimating the Value of Increased Product Variety at Online Booksellers , 2003, Manag. Sci..

[9]  Ali Hortaçsu,et al.  Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds , 2003 .

[10]  Ali Hortaçsu,et al.  Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds , 2003 .

[11]  Gerald L. Lohse,et al.  Cognitive Lock-In and the Power Law of Practice , 2003 .

[12]  John G. Lynch,et al.  Smart Agents: When Lower Search Costs for Quality Information Increase Price Sensitivity , 2003 .

[13]  Ramayya Krishnan,et al.  Retail Strategies on the Web: Price and Non-Price Competition in the Online Book Industry , 2003 .

[14]  Michael D. Smith.  The impact of shopbots on electronic markets , 2002 .

[15]  Eric K. Clemons,et al.  Price Dispersion and Differentiation in Online Travel: An Empirical Investigation , 2002, Manag. Sci..

[16]  Austan Goolsbee,et al.  Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry , 2000, Journal of Political Economy.

[17]  John G. Lynch,et al.  Wine Online: Search Costs Affect Competition on Price, Quality, and Distribution , 2000 .

[18]  Erik Brynjolfsson,et al.  Consumer Decision-Making at an Internet Shopbot , 2001 .

[19]  Erik Brynjolfsson,et al.  Consumer Decision-Making at an Internet Shopbot , 2001 .

[20]  Ali Hortaçsu,et al.  Winner's Curse, Reserve Prices and Endogenous Entry: Empirical Insights from Ebay Auctions , 2003 .

[21]  Austan Goolsbee,et al.  Does the Internet Make Markets More Competitive? , 2000 .

[22]  Alan T. Sorensen.  Equilibrium Price Dispersion in Retail Markets for Prescription Drugs , 2000, Journal of Political Economy.

[23]  K. Train.  Halton Sequences for Mixed Logit , 2000 .

[24]  Erik Brynjolfsson,et al.  Frictionless Commerce? A Comparison of Internet and Conventional Retailers , 2000 .

[25]  Simon P. Anderson,et al.  Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model , 1999 .

[26]  Eric J. Johnson,et al.  Divide and Prosper: Consumers’ Reactions to Partitioned Prices , 1998 .

[27]  Aviv Nevo.  Measuring Market Power in the Ready-to-Eat Cereal Industry , 1998 .

[28]  J. Bakos.  Reducing buyer search costs: implications for electronic marketplaces , 1997 .

[29]  Peter E. Rossi,et al.  The Value of Purchase History Data in Target Marketing , 1996 .

[30]  P. Goldberg.  Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry , 1995 .

[31]  Steven T. Berry,et al.  Automobile Prices in Market Equilibrium , 1995 .

[32]  Manuel Trajtenberg,et al.  The Welfare Analysis of Product Innovations, with an Application to Computed Tomography Scanners , 1989, Journal of Political Economy.

[33]  Dale O. Stahl,et al.  Oligopolistic Pricing with Sequential Consumer Search , 1989 .

[34]  B. Wernerfelt,et al.  Umbrella Branding as a Signal of New Product Quality: An Example of Signalling by Posting a Bond , 1988 .

[35]  Rafael Rob,et al.  Equilibrium Price Distributions , 1985 .

[36]  Peter R. Dickson,et al.  Shopping for appliances : consumers' strategies and patterns of information search , 1985 .

[37]  D. McFadden.  Econometric analysis of qualitative response models , 1984 .

[38]  K. Judd,et al.  EQUILIBRIUM PRICE DISPERSION , 1983 .

[39]  Eric J. Johnson,et al.  Product familiarity and learning new information , 1984 .

[40]  D. McFadden.  Econometric Models of Probabilistic Choice , 1981 .

[41]  Steven M. Shugan.  The Cost Of Thinking , 1980 .

[42]  H. Varian.  A Model of Sales , 1980 .

[43]  K. Small,et al.  Applied Welfare Economics with Discrete Choice Models , 1979 .

[44]  Gerard R. Butters.  Equilibrium Distributions of Sales and Advertising Prices , 1977 .

[45]  P. Diamond.  A model of price adjustment , 1971 .