A Nearly Perfect Market?
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
Astrid Andrea Dick
INSEAD; Federal Reserve Bank of New York
Michael D. Smith
Carnegie Mellon University - H. John Heinz III School of Public Policy and Management
We estimate the magnitude of consumer search benefits and costs using data obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $6.55 while the cost of an exhaustive search of the offers is a maximum of $6.45. We are also able to estimate price elasticities and find that they are relatively high compared to offline markets (-7 to -10 in our base model). Our results suggest that consumers face fairly high costs to search for information online, even in the "nearly perfect" market of the shopbot.
Number of Pages in PDF File: 41
Keywords: Search costs, shopbot, product differentiation, random coefficients choice model
Date posted: October 20, 2003 ; Last revised: June 9, 2014