Search with Refinement
Northwestern University - Department of Marketing
August 16, 2012
One important feature of online search technology is that consumers are able to refine the search results using tools such as sorting and filtering. Albeit such refinement tools have significant effects on consumer behavior and market structure, there is little empirical research documenting and measuring the effects. We propose a structural model of optimal consumer search that coherently integrates the decisions of consumer search and refinement under the uncertainty about the products. The model is estimated using a unique dataset of individual level consumer hotel search activities provided by a travel website. We find that the refinement tools encourage 36% more searches and enhance the utility of purchased products by 16%. However, most websites by default rank search results according to their qualities or relevance to consumers (e.g., Google). We find that if consumers are uninformed about such default ranking rules, they may engage in disproportionally more searches using the refinement tools. Consequently, overall welfare surplus may deteriorate by up to 4%. In contrast, when consumers are informed that the default ranking already reflects the qualities or relevance, they search less and the welfare surplus increases by 3.4%. We also find that the refinement leads to a less concentrated market structure.
Number of Pages in PDF File: 30
Keywords: consumer search, information asymmetry, market structure, electronic commerce, consumer behaviorworking papers series
Date posted: August 16, 2012
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