The Consumer Online Purchase Decision: A Model of Consideration Set Formation and Buyer Conversion Rate Across Market Leaders and Market Followers

Abstract:     
The impact of low search costs in Internet markets has received a great deal of attention in the academic literature and in the press. While many have argued that the presence of low search costs will lead to strong price competition and vanishing margins, the empirical evidence is decidely mixed. Reflecting this uncertainty, firms have taken radically different strategies with regard to facilitating search across sites. Some firms have actively blocked or attempted to limit price search (e.g., by refusing to be listed at shopbots) while others have actively encouraged price search.

In this research, we use a unique dataset of detailed customer survey data to analyze the impact of consumer search behavior on the formation of consideration sets and the consumer's ultimate purchase decision. We find that while searching across market leaders is not detrimental for market followers, searching across market followers is somewhat detrimental for market leaders. These results suggest that today's market leaders may be at risk from increased consumer adoption of broad search technologies such as Internet shopbots.

Number of Pages in PDF File: 21

Keywords: Consumer search costs, competition, consideration set formation, empirical, survey

JEL Classification: L86, D83, L1, L8, M2, M3

working papers series