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Search with Refinement

Yuxin Chen

Northwestern University - Department of Marketing

Song Yao

Northwestern University

July 21, 2014

We propose a structural model of consumer sequential search under uncertainty about attribute levels of products. Our identification of the search model relies on exclusion restriction variables that separate consumer utility and search cost. Because such exclusion restrictions are often available in online clickstream data, the identification and corresponding estimation strategy is generalizable for many online shopping websites where such data can be easily collected. Furthermore, one important feature of online search technology is that it gives consumers the ability to refine search results using tools such as sorting and filtering based on product attributes. The proposed model can coherently integrate consumers' decisions of search and refine. The model is instantiated using consumer clickstream data of online hotel bookings provided by a travel website. The results show that refinement tools have significant effects on consumer behavior and market structure. We find that the refinement tools encourage 34% more searches and enhance the utility of purchased products by 18%. However, most websites by default rank search results according to their qualities or relevance to consumers (e.g., Google). When consumers are unaware of such default ranking rules, they may engage in disproportionately more searches using refinement tools. Consequently, overall welfare surplus may deteriorate when search cost outweighs the enhanced utility. In contrast, if the website simply informs consumers that the default ranking already reflects product quality or relevance, consumers search less and the welfare surplus improves. We also find that refinement tools lead to a less concentrated market structure.

Number of Pages in PDF File: 48

Keywords: consumer search, information asymmetry, market structure, electronic commerce, consumer behavior

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Date posted: August 16, 2012 ; Last revised: July 25, 2014

Suggested Citation

Chen, Yuxin and Yao, Song, Search with Refinement (July 21, 2014). Available at SSRN: http://ssrn.com/abstract=2130646 or http://dx.doi.org/10.2139/ssrn.2130646

Contact Information

Yuxin Chen
Northwestern University - Department of Marketing ( email )
Kellogg School of Management
2001 Sheridan Rd.
Evanston, IL 60208
United States
Song Yao (Contact Author)
Northwestern University ( email )
Kellogg School of Management
2001 Sheridan Road
Evanston, IL 60208
United States
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