Search and Product Differentiation at an Internet Shopbot

Price dispersion among commodity goods is typically attributed to consumer search costs. We explore the magnitude of consumer search costs using a data set obtained from a major Internet shopbot. For the median consumer, the benefits to searching lower screens are $2.24 while the cost of an exhaustive search of the offers is a maximum of $2.03. Interestingly, in our setting, consumers who search more intensively are less price sensitive than other consumers, reflecting their increased weight on retailer differentiation in delivery time and reliability. Our results demonstrate that even in this nearly-perfect market, substantial price dispersion can exist in equilibrium from consumers preferences over both price and non-price attributes. ∗Sloan School of Management, Massachusetts Institute of Technology, [email protected]. †Federal Reserve Board, [email protected]. ‡H. John Heinz III School of Public Policy and Management, Carnegie Mellon University, [email protected]. We thank Susan Athey and Nancy Rose for their useful and careful comments. Any errors are our own.