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Comparison sites

Author

Listed:
  • Moraga-Gonzalez, Jose L.

    (IESE Business School)

  • Wildenbeest, Matthijs R.

    (Indiana University)

Abstract

Web search technologies are fundamental tools for navigating the Internet. One particular type of search technology is "shopbots", or comparison sites. The emergence of Internet shopbots and their implications for price competition and market efficiency are the focus of this paper. We develop a simple model where a price comparison site tries to attract (possibly vertically and horizontally differentiated) online retailers, on the one hand, and consumers, on the other. Analysis of the model reveals that differentiation among the products of the retailers and their ability to price discriminate between on- and off-comparison-site consumers play a critical role. When products are homogeneous, if online retailers cannot charge different on- and off-the-comparison-site prices, then the comparison site has incentives to charge fees so high that some firms are excluded, which generates price dispersion and an inefficient outcome. By contrast, when on- and off-comparison-site prices can be different, the comparison site attracts all the players to the platform and the allocation is efficient. A similar result obtains when products are horizontally differentiated. In that case, the comparison site becomes an aggregator of product information and no matter whether firms can price discriminate or not, the comparison site attracts all the players to the platform and an efficient outcome ensues. We argue that the lack of vertical product differentiation may also be critical for this efficiency result. In fact, we show that when quality differences are large, the comparison site may find it profitable to charge fees that effectively exclude low quality producers, thereby inducing an inefficient outcome.

Suggested Citation

  • Moraga-Gonzalez, Jose L. & Wildenbeest, Matthijs R., 2011. "Comparison sites," IESE Research Papers D/933, IESE Business School.
  • Handle: RePEc:ebg:iesewp:d-0933
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    File URL: http://www.iese.edu/research/pdfs/DI-0933-E.pdf
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    Other versions of this item:

    • Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2011. "Comparison Sites," Working Papers 2011-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.

    References listed on IDEAS

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    Cited by:

    1. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.
    2. Michael R. Baye & Babur De los Santos & Matthijs R. Wildenbeest, 2015. "Searching for Physical and Digital Media: The Evolution of Platforms for Finding Books," NBER Chapters, in: Economic Analysis of the Digital Economy, pages 137-165, National Bureau of Economic Research, Inc.
    3. Sandro Shelegia & Chris M Wilson, 2014. "A Utility-Based Model of Sales with Informative Advertising," Discussion Paper Series 2014_09, Department of Economics, Loughborough University, revised Oct 2014.

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    More about this item

    Keywords

    shopbots; two-sided market; intermediation; price discrimination; product differentiation;
    All these keywords.

    JEL classification:

    • L0 - Industrial Organization - - General

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