Market Efficiency in the Financial Services Industry: Buyer Search Behaviour on an Electronic Commodity Market

Due to the immateriality of financial services and products they lend themselves handsomely for sale on the WWW. This may be one of the main reasons why the financial services industry has gained a cutting edge in the net with respect to other industries. Thus, at the beginning of the third millennium, the market for financial services is undergoing a fundamental shift since it is questionable whether the traditional approach of just selling financial commodity products in increasingly transparent and global markets will still be profitable in the future. Applying search cost theory, the gap of two formerly separately analysed search methods – sequential and simultaneous search – is closed in this article to contribute to the explanation of customer buying behaviour in an electronic commodity market such as the market for financial (commodity) products. The set-up of the model and the theoretical results are confronted with empirical evidence from German financial services market with respect to comparison shopping. Overall, the results suggest that issues like branding, trust, and retailer efforts to build consumer lock-in may become much more important in the future for financial services providers to successfully compete in the market.