Abstract

Advances and widespread use of Internet shopping intermediaries have empowered consumers to collect detailed product information and discover the price dispersion for the product and its alternatives. These intermediaries provide in-depth decision support systems for consumers to search and sort out vast amount of information available on Internet. This paper examines the impact of these intermediaries upon consumer strategy and payoffs. We extend pioneering works in the area of information economics to find out optimal consumer search strategies varying level of market competition, signal qualities from intermediaries, and search costs. Our major findings are: (1) consumer payoff is continuous along the quality of signal dimension, but it may have kinks because of strategy changes, (2) cost of search decreases the incentive to search, and (3) market competition increases the incentive to search. This work reinforces the existing literature propositions on the impact of search costs in a stochastic problem setting and includes an intriguing analysis of market competition and corresponding consumer strategies. Our findings should assist firms in their design of infomediaries and precipitate in improved understanding of the impacts on market competition and rationale for consumer behavior and strategies.

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