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Comparison sites

  • Moraga-Gonzalez, Jose L.

    ()

    (IESE Business School)

  • Wildenbeest, Matthijs R.

    (Indiana University)

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.

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Paper provided by IESE Business School in its series IESE Research Papers with number D/933.

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Length: 33 pages
Date of creation: 09 Jul 2011
Date of revision:
Handle: RePEc:ebg:iesewp:d-0933
Contact details of provider: Postal: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Web page: http://www.iese.edu/

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  1. E. Glen Weyl, 2010. "A Price Theory of Multi-sided Platforms," American Economic Review, American Economic Association, vol. 100(4), pages 1642-72, September.
  2. Michael R. Baye & J. Rupert J. Gatti & Paul Kattuman & John Morgan, 2005. "Did the Euro Foster Online Price Competition? Evidence from an International Price Comparison Site," Working Papers 2005-09, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
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