Retailer Competition in Shopbots

Abstract

While retailers initially avoided Internet price comparison sites (shopbots) due to increased transparency, they now actively join them and readily provide price information regarding their product assortments. Although the consumer perspective has been well analyzed in shopbots, only limited attention has addressed retailer competition, indicating a need for further empirical research. Therefore, in our study, we investigate the motivation of retailer involvement in shopbots, and analyze the determinants of pricing behavior of retailers participating in this competitive environment.

We address the research questions by investigating a large dataset with more than 600,000 observations made between July 2004 and June 2005. Data was provided firsthand by a leading German shopbot, making daily observations on prices and respective click volumes available, thereby allowing a comprehensive investigation of retailer competition in shopbots.

Our results indicate that retailers participate in shopbots because they can receive a substantial number of clicks even if they are not located in the top position of the results list. The adaptation of prices over time can best be explained with competitive factors as opposed to demand factors. This indicates that online price transparency does in fact lead to higher levels of competition, but is compensated by broader consumer reach.

Keywords: Internet, Pricing, Competition, Shopbots, Digital Business