Search with Refinement
Northwestern University - Department of Marketing
June 21, 2014
We propose a structural model of consumer sequential search under uncertainty about attribute levels of products. Especially, the identification of the search model relies on both purchase and search activities commonly observed in many clickstream datasets. The purchase data enable the identification of consumer preference independent of the search process. Search cost is then identified from search data conditioned on the identified preference. The identification and corresponding estimation strategy is generalizable for online shopping websites where clickstream data can be easily collected and contain both search and purchase activities. Furthermore, one important feature of online search technology is that consumers are able to refine the search results using tools such as sorting and filtering based on product attributes. The proposed model coherently integrates the decisions of consumer search and refinement. 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 the refinement tools. Consequently, overall welfare surplus may deteriorate when search cost accumulated during the search 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: 44
Keywords: consumer search, information asymmetry, market structure, electronic commerce, consumer behaviorworking papers series
Date posted: August 16, 2012 ; Last revised: June 24, 2014
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