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Shopping Cost and Brand Exploration in Online Grocery

  • Andrea Pozzi

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)

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Article provided by American Economic Association in its journal American Economic Journal: Microeconomics.

Volume (Year): 4 (2012)
Issue (Month): 3 (August)
Pages: 96-120

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Handle: RePEc:aea:aejmic:v:4:y:2012:i:3:p:96-120
Note: DOI: 10.1257/mic.4.3.96
Contact details of provider: Web page: https://www.aeaweb.org/aej-micro
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  1. Andrew Kato & Ginger Jin, 2004. "Dividing online and offline: A case study," Natural Field Experiments 00276, The Field Experiments Website.
  2. 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 1535-46, June.
  3. 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.
  4. 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.
  5. Goolsbee, Austan, 2001. "Competition in the Computer Industry: Online versus Retail," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 487-99, December.
  6. 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, 06.
  7. Brown, Jeffrey, 2000. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Working Paper Series rwp00-007, Harvard University, John F. Kennedy School of Government.
  8. J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December.
  9. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, 06.
  10. Barry L. Bayus, 1992. "Brand Loyalty and Marketing Strategy: An Application to Home Appliances," Marketing Science, INFORMS, vol. 11(1), pages 21-38.
  11. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
  12. Kenneth Train, 2003. "Discrete Choice Methods with Simulation," Online economics textbooks, SUNY-Oswego, Department of Economics, number emetr2, March.
  13. Burke, Raymond R, et al, 1992. " Comparing Dynamic Consumer Choice in Real and Computer-Simulated Environments," Journal of Consumer Research, University of Chicago Press, vol. 19(1), pages 71-82, June.
  14. 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 113-34, December.
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