To Buy or Not to Buy? A Two Stage Model of within Site Search

We investigate the within site purchase and search behavior of online customers visiting one of the largest European online travel agencies. Using a dynamic two stage model of purchase incidence and carrier choice we study how price uncertainty affects consumer purchase behavior. We find that current and future category value along with visitors ’ browsing experience and search effort are important predictors of purchase incidence. We find that consumers are forward looking and learn about the distribution of prices as they search. Spatial price variation results in greater search, while the number of flight options positively influences purchase incidence. Customers who search actively have a lower purchase threshold, however, customers who exit without making a purchase are less likely to purchase in subsequent visits to the website. Furthermore, expected expenditure and flight characteristics are key determinants of airline choice. Both observed and unobserved heterogeneity in search behavior are also found to influence purchase decisions. Tests of predictive ability also validate the proposed search model compared to a model without pre-purchase behavior. We also discuss important implications for website managers