This paper uses consumer search data to explain search frictions in online markets, within the context of an equilibrium search model. I use a novel dataset of consumer online browsing and purchasing behavior, which tracks all consumer search prior to each transaction. Using observed search intensities from the online book industry, I estimate search cost distributions that allow for asymmetric consumer sampling. Research on consumer search often assumes a symmetric sampling rule for analytical convenience despite its lack of realism. Search behavior in the online book industry is quite limited: in only 25 percent of the transactions did consumers visit more than one bookstore's website. The industry is characterized by a strong consumer preference for certain retailers. Accounting for unequal consumer sampling halves the search cost estimates from $1.8 to $0.9 per search in the online book industry. Analysis of time spent online suggests substitution between the time consumers spend searching and the relative opportunity cost of their time. Retired people, those with lower education levels, and minorities (with the exception of Hispanics) spent significantly more time searching for a book online. There is a negative relationship between income levels and time spent searching.
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Publisher Info
Paper provided by NET Institute in its series Working Papers with number
08-15.
Babur de los Santos, 2008.
"Consumer Search on the Internet,"
Working Papers
2008-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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Find related papers by JEL classification: L80 - Industrial Organization - - Industry Studies: Services - - - General L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
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