The Impacts of Shopbots on Online Consumer Search

Abstract

Online price comparison agents (shopbots) allow consumers to instantaneously receive price and other information from many online retailers. Online consumer clickstream data from ComScore Inc. demonstrate that consumers are increasingly using shopbots to conduct search. This phenomenon raises such questions as "how do shopbots change consumers' search behavior?" and "do they reduce consumers' online search?" Conventional wisdom suggests that consumers are expected to search less because shopbots have displayed prices and other relative information from retailers on the search result page(s). Surprisingly, this study demonstrates the opposite result. That is, consumers are actually visiting more online retailer web sites after using shopbots. This finding suggests that after searching for an item through a shopbot and receiving the price information, consumers will continue to look for detailed information about the online retailers by visiting their web sites. The empirical finding is explained by an analytical model, which shows that on the one hand shopbots reduce the marginal benefit of searching additional online stores; on the other hand they reduce the cost of search. Therefore whether shopbots reduce consumer search depends on the cost of reducing per unit of risk, which is decided by a number of factors, such as marginal search costs, price dispersion and quality differentiation among stores, price and quality correlation, and consumers' relative preference for service quality. The model also gives sufficient and necessary conditions under which shopbots increase consumer surplus.