Too Little or Too Much Seller Assortment: The Effects on Buyers’ Purchase Probabilities in a Food Sharing Platform
57 Pages Posted: 12 Dec 2019
Date Written: November 1, 2019
Using a unique dataset from a large food sharing platform, we investigate the effect of supply side assortment size on users' purchase probabilities. We find that users' purchase probabilities are increasing in assortment size but at a decreasing rate. The initial increase in purchase probability is large. Users exposed to the mean 15 pages (150 options) of search results have an 8.4% higher purchase probability than those who only have access to one page of options. However, this effect plateaus rapidly with a peak lift in purchase probability compared to average session of 2.86% at 29 pages of options. Furthermore, choice overload exists in our empirical support, leading to a slight decrease in purchase probability versus the optimal assortment size of .1% at 32 pages. Surprisingly, the diminishing returns to assortment size are shown to be due to search costs rather than evaluation costs or decreasing marginal assortment diversification. Moreover, we show that users' exposure to nearby offline options can offset the diminishing impact of assortment size on purchasing. To obtain these results, we resolve endogeneity challenges by introducing a variant of the border identification strategy that exploits discrete delivery distances featured in the data. We contribute to the literature by demonstrating the limits of a platform's aggressive supply side growth, showing that search costs can dampen the purchase probability gains driven by assortment size leading to choice overload, and suggesting that users' outside options can alleviate the concave effects of assortment size on purchase probabilities.
Keywords: assortment size, choice overload, search costs, sharing economy, two-sided platform
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