Does Online Product Information Increase Consumer Demand? An Empirical Investigation

Abstract

The Internet provides consumers with unprecedented amounts of product information. Although the competitive implications of better-informed consumers have been extensively studied, little attention has been paid to the impact of information on overall consumer demand. In this paper, we estimate the differences in demand for music CDs and cassettes between consumers who access online product information and those who do not. Our empirical model accounts for the self-selection effect that consumers who have greater demand for a product are more likely to search for information on that product. After controlling for self-selection and observable consumer characteristics, we show that consumers who access online product information have a 17% greater demand for CDs and cassettes. Using our model estimates, we calculate the benefits of a new marketing strategy in which product information is provided only to those consumers who exhibit the highest marginal demand response to product information. We show that this strategy significantly outperforms the traditional strategy of targeting consumers who had high demand in the past.

Keywords: Product information, electronic commerce, consumer demand, target marketing

JEL Classification: L10, M31