Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

Comparison Shopping Agents and Online Price Dispersion: A Search Cost Based Explanation

Academic journal article Journal of Theoretical and Applied Electronic Commerce Research

Comparison Shopping Agents and Online Price Dispersion: A Search Cost Based Explanation

Article excerpt

Abstract

Search costs and consumer heterogeneity are two important explanations for the price dispersion in the brick and mortar (B&M) markets. Comparison shopping agents (CSAs) provide a single click decision support for consumers' purchasing related decision problems and reduce their search costs by providing detail price dispersion related information. Contemporary researchers in IS observe that even with such negligible search costs, price dispersion still continues in the online markets. Consumer heterogeneity and retailer heterogeneity have been agreed upon as two primary explanations for online price dispersions. In this paper, popular CSAs are analyzed to check if they provide complete and accurate price dispersion information. It is shown that because of the selection bias and temporal delay in updating information, contemporary CSAs may not present complete and accurate price dispersion information. In order to reach to an optimal purchasing decision, consumers may have to rely on a sequential search across multiple CSAs or browse through various retailers. This research adds a search cost dimension to explain the continuance of price dispersion in the online markets.

Keywords: Price dispersion, Search costs, CSA, Shopbots, Comparison shopping agents

1 Introduction

The advent of the Internet has provided sellers a cost effective platform to extend their reach beyond any geographical or temporal barriers. Moreover, because of the centralized inventory, online retailers have expanded their product portfolio and embraced long tail phenomenon. The shoppers' purchasing decision has become complex because of ever increasing number of options in terms of sellers and product varieties. Alternate business models of information intermediaries have emerged that provide detail information to shoppers at minimum level of efforts. Comparison shopping agents are such infomediaries that facilitate detail seller and product related information to shoppers. Researchers in information systems (IS), marketing, and economics have been intrigued by the role these CSAs play in reducing price dispersion in the online markets.

Analysis of ongoing price dispersion in online markets, even in the presence of CSAs, is an interesting problem and researches in marketing, economics, and information systems have studied this issue. Prior literature discusses consumer heterogeneity and search costs based justification for the existence of price dispersion in the brick and mortar markets [33], [34], [42]. The CSAs provide detail price and retailer comparison based on the product information supplied by the shoppers. This reduces the search costs associated with determining price quotes from various retailers and hence should remove the factors that tend to facilitate price dispersion in the market. However, researchers have found that just like their B&M counterparts, the online retail market also displays spatial and temporal price dispersions [2], [7], [10], [15], [35]. Much of the prior research acknowledges the role of CSAs in reducing search costs and provides non-search costs based explanations for the existence of price dispersion in online markets. Previous studies have provided consumer heterogeneity, seller heterogeneity, and price discrimination as potential factors that contribute to online price dispersion. The underlying presumption in these studies is that because of CSAs, the impact of search costs is negligible in online shopping.

This research studies the online price dispersion problem and analyzes the role of search costs in explaining online price dispersion. One click price comparison provided by CSAs can potentially remove search costs associated with comparison shopping. However, in this paper, I study whether comparison shopping information provided by CSAs is accurate and complete. If such information is incomplete and inaccurate then shoppers may have to conduct additional search costs. …

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