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Consumer Search on the Internet

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Abstract

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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File URL: http://www.netinst.org/DeLosSantos_08-15.pdf
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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 08-15.

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Length: 36 pages
Date of creation: Sep 2008
Date of revision: Sep 2008
Handle: RePEc:net:wpaper:0815

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Web page: http://www.NETinst.org/

Related research

Keywords: search model; non-sequential search; fixed sample search; online markets; book industry;

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References

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  1. Michael Baye & John Morgan, 2005. "Brand and Price Advertising in Online Markets," Microeconomics 0504009, EconWPA.
  2. Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Working Papers 8271, National Bureau of Economic Research, Inc.
  3. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 351-67, September.
  4. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer, vol. 21(3), pages 305-324, November.
  5. MacMinn, Richard D, 1980. "Search and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 308-27, April.
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Citations

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Cited by:
  1. Castilla, Carolina & Haab, Timothy C., 2010. "Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market," 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado 61672, Agricultural and Applied Economics Association.
  2. Rauh, Michael T., 2009. "Strategic complementarities and search market equilibrium," Games and Economic Behavior, Elsevier, vol. 66(2), pages 959-978, July.
  3. Armstrong, Mark & Zhou, Jidong, 2013. "Search Deterrence," MPRA Paper 48568, University Library of Munich, Germany.
  4. Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
  5. Armstrong, Mark & Zhou, Jidong, 2010. "Exploding offers and buy-now discounts," MPRA Paper 24849, University Library of Munich, Germany.
  6. Sergei Koulayev, 2008. "Estimating search with learning," Working Papers 08-29, NET Institute, revised Oct 2008.
  7. Matthijs R. Wildenbeest, 2011. "An empirical model of search with vertically differentiated products," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 729-757, December.
  8. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2009. "Testing Models of Consumer Search Using Data on Web Browsing Behavior," Working Papers 09-23, NET Institute, revised Aug 2009.
  9. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2009. "Testing Models of Consumer Search using Data on Web Browsing and Purchasing Behavior," Working Papers 2009-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  10. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Search with Learning," Working Papers 2012-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  11. Gal OEstreicher-Singer & Barak Libai, 2011. "Assessing Value in Product Networks," Working Papers 11-29, NET Institute, revised Sep 2011.
  12. Sergei Koulayev, 2009. "Estimating demand in search markets: the case of online hotel bookings," Working Papers 09-16, Federal Reserve Bank of Boston.

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