Essays on consumer product evaluation and online shopping intermediaries

2014-03-11My dissertation aims to advance our understanding of consumer product evaluation and its managerial implications in e‐commerce. The conventional search models normally focus on one dimension (e.g. across firms). However, consumer search is often multi‐dimensional (e.g. attribute and product line) and consumers are free to explore all these possibilities. In this dissertation, I focus on multi‐dimensional search: within a product (e.g. attributes), within a firm’s product line (e.g. how many products from a firm). I show that search among these dimensions bring interesting marketing insights in various e‐commerce settings. ❧ My dissertation first considers a theoretical setting in which firms carry multiple products and consumers incur evaluation costs, not only across firms, but also within firms. Consumers judiciously decide the number of firms to include in their consideration sets as well as how many products from those firms. This decision depends on the relative trade‐offs of evaluating an additional product and whether it is from a firm already included in the consideration set or from an entirely new firm. The composition of the consumer’s consideration set affects how firms compete in prices and in the number of products to offer. Contrary to previous literature, firm differentiation can reduce firms’ product lines and within‐firm evaluation costs have either a positive or a negative effect on firms’ prices. Interestingly, we show that within‐firm evaluation costs and across‐firm evaluation costs are different constructs. The number of products firms offer in equilibrium can exceed the socially optimal level if within‐firm evaluation costs are significant. ❧ In the second chapter, I study the situation where consumers need not evaluate all available product information before making a purchase. This may arise because shopping environments prevent a full evaluation (e.g. online). We study a model of simultaneous search in which consumers have limited ability in product evaluation. We find that consumers may evaluate more firms, enjoy lower prices and higher surpluses despite this limited ability. In fact, we show that if consumers are endowed with the ability to choose how much information to acquire from a searched product, they may choose limited product evaluation. This implies a non‐monotonic relationship between prices and search costs. We then extend our setting to the case of multiproduct firms and find similar effects due to changes in within‐firm search costs. ❧ My final chapter studies the strategic design of online shopping intermediaries’ search environments. An online shopping intermediary is an Internet platform for consumers and third‐party sellers to transact. Examples are Taobao Mall, YahooShopping and Amazon.com. Shopping intermediaries provide a search environment (e.g. search aids) to lower consumers’ search costs in finding and evaluating sellers’ products. In a theoretical model, we study strategic incentives of an intermediary in the design of its search environment as a means to ease search costs. An important aspect of our analysis is that consumers optimally decide how many sellers to evaluate and how deeply (e.g. number of attributes) to evaluate each of them. We find that the equilibrium search environment embeds enough search costs to prevent consumers from evaluating too many sellers, but not too much to prevent them from evaluating sellers’ products partially. When facing consumers of heterogeneous search abilities, the search environment has all consumers evaluating products at full depth and consumers with higher evaluation abilities evaluating more sellers. We also show that intermediaries embed weakly less search costs with competition