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Shopping Cost and Brand Exploration in Online Grocery

Author

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  • Andrea Pozzi

Abstract

This paper compares consumers' brand exploration when shopping online versus in a brick-and-mortar store. I use a new scanner dataset to compare the behavior of households shopping online and in-store at the same chain, for identical items and prices. I find that brand exploration is more prevalent in-store. My model quantifies the role of features of e-commerce, like the existence of "favorites lists" and the difficulty in verifying item quality. Limited exploration online implies higher barriers to entry on the Internet channel. Counterfactual exercises suggest that online advertising could make the Internet channel more competitive. (JEL D12, L11, L81, M31, M37)

Suggested Citation

  • Andrea Pozzi, 2012. "Shopping Cost and Brand Exploration in Online Grocery," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 96-120, August.
  • Handle: RePEc:aea:aejmic:v:4:y:2012:i:3:p:96-120
    Note: DOI: 10.1257/mic.4.3.96
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    References listed on IDEAS

    as
    1. Ginger Zhe Jin & Andrew Kato, 2007. "Dividing Online and Offline: A Case Study," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 981-1004.
    2. Goolsbee, Austan, 2001. "Competition in the Computer Industry: Online versus Retail," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 487-499, December.
    3. Barry L. Bayus, 1992. "Brand Loyalty and Marketing Strategy: An Application to Home Appliances," Marketing Science, INFORMS, vol. 11(1), pages 21-38.
    4. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, June.
    5. Il-Horn Hann & Christian Terwiesch, 2003. "Measuring the Frictional Costs of Online Transactions: The Case of a Name-Your-Own-Price Channel," Management Science, INFORMS, vol. 49(11), pages 1563-1579, November.
    6. Scherer, F M, 1979. "The Welfare Economics of Product Variety: An Application to the Ready-to-Eat Cereals Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 28(2), pages 113-134, December.
    7. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
    8. Lesley Chiou, 2009. "Empirical Analysis of Competition between Wal-Mart and Other Retail Channels," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 285-322, June.
    9. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    10. Train,Kenneth E., 2009. "Discrete Choice Methods with Simulation," Cambridge Books, Cambridge University Press, number 9780521747387.
    11. Aviv Nevo & Catherine Wolfram, 2002. "Why Do Manufacturers Issue Coupons? An Empirical Analysis of Breakfast Cereals," RAND Journal of Economics, The RAND Corporation, vol. 33(2), pages 319-339, Summer.
    12. Burke, Raymond R, et al, 1992. " Comparing Dynamic Consumer Choice in Real and Computer-Simulated Environments," Journal of Consumer Research, Oxford University Press, vol. 19(1), pages 71-82, June.
    13. Matthew Shum, 2004. "Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast-Cereals Market," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 241-272, June.
    14. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
    15. Gregory Lewis, 2011. "Asymmetric Information, Adverse Selection and Online Disclosure: The Case of eBay Motors," American Economic Review, American Economic Association, vol. 101(4), pages 1535-1546, June.
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    Citations

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    Cited by:

    1. Pozzi, Andrea, 2013. "E-commerce as a stockpiling technology: Implications for consumer savings," International Journal of Industrial Organization, Elsevier, vol. 31(6), pages 677-689.
    2. Steel, Will & Daglish, Toby & Marriott, Lisa & Gemmell, Norman & Howell, Bronwyn, 2013. "E-Commerce and its effect upon the Retail Industry and Government Revenue," Working Paper Series 4333, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    3. Xu, Yan, 2017. "Essays on preference formation and home production," Other publications TiSEM b028fd7e-53ba-4ff6-97eb-4, Tilburg University, School of Economics and Management.
    4. Ribeiro, Ricardo, 2010. "Consumer demand for variety: intertemporal effects of consumption, product switching and pricing policies," MPRA Paper 25812, University Library of Munich, Germany.
    5. repec:eee:jouret:v:91:y:2015:i:2:p:217-234 is not listed on IDEAS
    6. Andrea Pozzi, 2011. "Who Is Hurt by E-Commerce? Crowding out and Business Stealing in Online Grocery," EIEF Working Papers Series 1114, Einaudi Institute for Economics and Finance (EIEF), revised Sep 2011.
    7. Naumovska, Ljupka & Blazeska, Daliborka, 2016. "Public Relation Based Model Of Integrated Marketing Communications," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 7(2), pages 175-186.
    8. repec:eee:joinma:v:31:y:2015:i:c:p:63-78 is not listed on IDEAS

    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
    • M31 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Marketing
    • M37 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Marketing and Advertising - - - Advertising

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