SEARCHSTRUC

The Effect of On-Line Product Search on the Market Structure of Consumer Durables

 Partecipanti

Mappa

 Word cloud

Esplora la "nuvola delle parole (Word Cloud) per avere un'idea di massima del progetto.

 Obiettivo del progetto (Objective)

'We propose to study the working of markets when consumers do not want to search all available choice options and when sellers recommend products based on what 'similar consumers' have bought in the past. We argue that the current practice of on-line selling offers significant potential for selection mechanisms or limitations of what the consumer is aware of, prior to purchase. To study this issue, we propose and estimate a demand model that includes a formal model of consumer information search. This model accounts for limited product search and information effects on choice. Our proposed demand model can be estimated from a combination of browsing histories and ordinal demand data. Because these data are available for a wide cross-section of durable goods, the method we develop will likely have broader application than the strict confines of the current empirical context. The goal of developing this demand model is (i) to measure the severity of selectivity in self-motivated or seller-directed information search and (ii) to subsequently evaluate the consequences of selection for consumer welfare, and for market structure (e.g., concentration and firm competition). For instance, most product recommendation systems used in on-line selling create a feedback, between past sales and current sales, because popular products get recommended more often than unpopular ones. This polarizes product popularity beyond what it already was. Clearly such effects hold relevance when evaluating competition and entry, because in a feedback market where the big get bigger and the small get smaller, firms potentially offering new and innovative products find it difficult to enter. In sum, our study consists of (i) the development of demand models under imperfect product search, and (ii) the evaluation of the effects on consumer welfare and market structure of selective product search. We expect these aspects to be relevant in the study of (pan)-European markets.'

Introduzione (Teaser)

Research has afforded greater insights into online consumer search behaviour and the 'problem' of inferring demand from final product choices. The project contributed to the relevant literature on marketing and economics, with implications for consumer marketing strategies.

Descrizione progetto (Article)

Although there are many tech-savvy mechanisms aimed at broadening online shopping choices, they often rely on data that do not provide the full picture. Simply put, the problem is that online consumers may not consider or explore every available product alternative. The EU-funded project 'The effect of on-line product search on the market structure of consumer durables' (SEARCHSTRUC) examined the underlying search process leading up to an actual purchase.

Investigations into the effects of search on competitiveness and consumer outcomes revealed that preferences, uncertainty and search cost drive consumer search. A project-developed empirically estimable model was applied to a specific product to answer questions on market structure and competition.

One finding was that estimated levels of price sensitivity are considerably higher than those emerging using a typical model of choice.

Findings in this area have important implications for how marketers, industrial organisation economists and antitrust policy workers conduct pricing analyses.

Another experiment using a joint model of costly consumer search and choice decisions further underlined the importance of accounting for the search stage. This model can help manufacturers make decisions regarding the adoption of a new feature in its product line management.

Other SEARCHSTRUC activities produced knowledge on the use of search data for studying demand. Two consumers who choose the same product may do so for different reasons. Knowing more about these reasons will help estimate consumer heterogeneity in markets with durable goods. This is critical for assessing the competitiveness of markets as well as price sensitivity.

Ongoing work involved the creation of a dataset of individual search activities. The focus is on a specific product (a durable good) and searches across time, products and online retailers. Initial results point to search outcomes being highly predictive of consumer choices. Expected findings will impart new information on consumer activity in the search environment, and have implications for the future design of search engines.

SEARCHSTRUC research fills a void in the literature, which often focuses solely on choice data or ignores underlying search-theoretic primitives. Thanks to this project, a better understanding of search behaviour will have major implications for organisations' marketing strategies.