Measuring the Frictional Costs of Online Transactions: The Case of a Name-Your-Own-Price Channel
We study the offers submitted by consumers to a large Name-Your-Own-Price (NYOP) online retailer. A distinctive feature of this retailer is that it allows consumers to repeatedly submit offers on one and the same product. While consumers could identify the threshold price (the minimum price for which the retailer is willing to sell) by incrementing their offer in small steps in each consecutive round, such a strategy would require them to go through many additional online transactions. We define frictional cost as the disutility that the consumer experiences when conducting an online transaction, such as submitting an offer. Thus, in our setting, consumers trade off a direct financial value (lower price) for frictional costs. Based on a consumer choice model capturing this trade-off, we use the observed consumer behavior to reconstruct the frictional cost parameters for the consumers in our sample. We show that, perhaps contrary to the general wisdom, frictional costs in electronic markets are substantial, with median values ranging from EUR 3.54 for a portable digital music player (MP3) to EUR 6.08 for a personal digital assistant (PDA). We find that consumers who have gathered experience with the NYOP channel in previous transactions exhibit lower frictional costs than consumers who use the channel for the first time. Surprisingly, sociodemographic variables do not help to explain the variation in frictional costs.
Volume (Year): 49 (2003)
Issue (Month): 11 (November)
|Contact details of provider:|| Postal: 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA|
Web page: http://www.informs.org/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Clay, Karen & Krishnan, Ramayya & Wolff, Eric, 2001.
"Prices and Price Dispersion on the Web: Evidence from the Online Book Industry,"
Journal of Industrial Economics,
Wiley Blackwell, vol. 49(4), pages 521-539, December.
- Karen Clay & Ramayya Krishnan & Eric Wolff, 2001. "Prices and Price Dispersion on the Web: Evidence from the Online Book Industry," NBER Chapters,in: E-commerce, pages 521-539 National Bureau of Economic Research, Inc.
- 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.
- John W. Pratt & David A. Wise & Richard Zeckhauser, 1979. "Price Differences in almost Competitive Markets," The Quarterly Journal of Economics, Oxford University Press, vol. 93(2), pages 189-211.
- Michael D. Smith & Erik Brynjolfsson, 2001. "Consumer Decision-making at an Internet Shopbot: Brand Still Matters," NBER Chapters,in: E-commerce, pages 541-558 National Bureau of Economic Research, Inc.
- Smith, Michael D & Brynjolfsson, Erik, 2001. "Consumer Decision-Making at an Internet Shopbot: Brand Still Matters," Journal of Industrial Economics, Wiley Blackwell, vol. 49(4), pages 541-558, December.
- Eric K. Clemons & Il-Horn Hann & Lorin M. Hitt, 2002. "Price Dispersion and Differentiation in Online Travel: An Empirical Investigation," Management Science, INFORMS, vol. 48(4), pages 534-549, April.
- Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
- Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
- Michael Smith & Erik Brynjolfsson, 1999. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Computing in Economics and Finance 1999 1022, Society for Computational Economics.
- Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
- Jaskold Gabszewicz, J. & Thisse, J. -F., 1980. "Entry (and exit) in a differentiated industry," Journal of Economic Theory, Elsevier, vol. 22(2), pages 327-338, April.
- GABSZEWICZ, Jean J. & THISSE, Jacques-François, "undated". "Entry (and exit) in a differentiated industry," CORE Discussion Papers RP 400, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- J. Yannis Bakos, 1997. "Reducing Buyer Search Costs: Implications for Electronic Marketplaces," Management Science, INFORMS, vol. 43(12), pages 1676-1692, December. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:49:y:2003:i:11:p:1563-1579. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.