I don’t often use comparison sites, but it happens more and mare as I’m trying to find the best deal for my plane ticket to fly to Asia for my Erasmus.
Customers usually use these sites as they think there is too much information for them to look at. They put some keywords in the research bar, sort out the products/services… Read more
I don’t often use comparison sites, but it happens more and mare as I’m trying to find the best deal for my plane ticket to fly to Asia for my Erasmus.
Customers usually use these sites as they think there is too much information for them to look at. They put some keywords in the research bar, sort out the products/services by prices and look more closely at the 5-10 top products and then make their choice.
There is actually a first choice to make: which website should the customer use?
He has several options: he might have heard about a good comparison website thanks to word-of-mouth, social medias (especially the liking and sharing of your friends), which are, as we saw in the class « E-Marketing », earned media that can’t be controlled by companies. He then will have enough faith in these websites to use them without doubting them.
But if the customer doesn’t know any of these websites, one logical reasoning is to search for one on the Internet, for instance, on Google. As most people know, companies pay Google to be the 5-top entries for a precised research. That will lead the customer to go to a random comparison sites.
Maybe the next step should be a comparison website… for comparison sites!
Another important point is the quality of the product. On websites like Amazon and eBay, you can compare prices but you can choose between new or used product. New products can be easily compared, as the price is the main thing the customer will focus on. According to Lee (2007): “A price comparison site relieves buyers from anxiety about information asymmetry and consequential loss related to the price.”
Products that already have been used are cheaper, but might be of less quality. Customers have then to « evaluate » if the cheaper price is actually a better option, as the quality might be really poor.
Thus the customer has to compare used products among them, and then compare the winner to the best deal of the new products. This seems like a lot of trouble, as comparison sites are supposed to help the customer. Of course, this only apply to a certain category of products that suffer of longevity and a long use.
My last point is that there might be other key factors for the customers than the price. Customers are more and more aware of disrespect towards environment of human rights and the respect of nature and human might be a key features for them. Unfortunately, comparison shopping websites don’t really tend to take them into account (but neither really do supermarkets).
One interesting website and app in this domain is Noteo. Thanks to the digital code, it allows the customer first to get a rate of the product thanks to four features: health, environment, social and budget. Second, you can actually compare them by theme: beauty, food, drinks… Unfortunately, there are only 60.000 products that have been analysed and they are consumable goods as creams, coffees, pastas, etc.
My conclusion is that comparison website still have a long way to go before they become really transparent and thus help the customer with all their might.
Sources
Hyung Seok, L., Dong Soo, J., & Jemi, C. (2011). Effects of Information Intermediary Functions of Comparison Shopping Sites on Customer Loyalty. Journal Of Internet Banking & Commerce, 16(2), 1-11.
Lee, S. (2007). The effects of price comparison site on price perception and value perception of online consumer. http://www.noteo.info/ Retrieved on 21/04/2015.
Before talking about the impact of comparison sites on the consumer, I believe it's relevant to understand the origin of the creation of these sites.
In the previous article we studied, named "Do recommendation systems make the tail longer or shorter? ", we established that isolating personalized information out of this ocean of information that is Internet is a possible… Read more
Before talking about the impact of comparison sites on the consumer, I believe it’s relevant to understand the origin of the creation of these sites.
In the previous article we studied, named “Do recommendation systems make the tail longer or shorter? “, we established that isolating personalized information out of this ocean of information that is Internet is a possible task.
In the case of comparison sites, these were created in order to collect and compare the different available products according to the potential buyer’s buying criteria (price, quality, warranty).
First of all, 70% of the consumers wish to gather information about different possible offers before purchasing something online (1). Identifying and manually comparing each alternative offer would take forever. Comparison sites are here to help the consumer to make decisions.
Indeed, these sites are so popular because they allows anyone to become a “well-informed consumer” effortlessly, information that nowadays every online shopper needs.This need for support is a direct result of the unbelievably wide range of products / service that are provided to consumers so easily throught the Internet.
In addition, international laws tend to make the competition more and more perfect (no more / less spawning customs, decrease of transport costs, etc.). This leaves space for a good number of products to compete for market shares, and therefore a good number of consumers in need of a comparison system.
Unfortunately, there is one twist, which as usual, was born out of the lucrative possibilities these sites created. Indeed, they started to require that the seller pays to reference his product on the site. Otherwise, the product will not be showed to customers. Consumers will think therefore that they are making the best choice based on the proposals of comparison sites, but it may be that the best deal is just not referenced.
In addition, to ensure that their offer is as visible as possible, some brands do not hesitate to pay more. This ranking can therefore be in the favor of the merchant, which is not to the benefit of the consumer.
However, more and more companies are implementing a strategy called “blackout” which involves complicating their products description to make it more difficult to compare. For example: a proposal package, unclear policies regarding shipping cost, … The goal is to break away from this dependence.
To conclude, these systems were initally created to help the consumer sort out all the different offers the internet can contain, and inform him so he could make the best choice. However, these sites have become so common and powerful that it has become almost essential for a vendor to place his products on a comparison site, even if it means paying your way to the top of the list, which is not at the advantage of the consumer.
Shopbots is a contraction of shopping robots. In fact it is about websites that group information about a wide range of products and that permits consumers to compare the different sales propositions. For consumers, this means a huge time saving in terms of research because they are able to track effectively the best offer. All the information is grouped on… Read more
Shopbots is a contraction of shopping robots. In fact it is about websites that group information about a wide range of products and that permits consumers to compare the different sales propositions. For consumers, this means a huge time saving in terms of research because they are able to track effectively the best offer. All the information is grouped on one website and users don’t have to waste time in comparing the different offers found on retailer’s websites.
From an economic point of view, this means that the search costs of the customers are considerably reduced. Intuitively, when the cost of an agent is reduced, we tend to think that his utility becomes better off. In addition, the fact that all the products are listed on one site results in a fierce competition between the different sellers, which drops the prices. Like Baye and Morgan say in their conclusion: “consumers gain and firms lose from the creation of a market for information”. But the research I made changed my mind and pushed me to think that the situation is complex. It seems like there are many other parameters that have to be taken into account. From a paper written by Chen and Sudhir, we learn that those shopbots also permits sellers to target better buyers by analysing their data which can affect positively the utility of the seller. This is without taking into account that the shopbot could ask a fee to sellers and sometimes to buyers. In different papers about comparison sites, the one written by Moraga and Wildenbeest for example, we learn that there is also a difference of effect according to the type of good that is sold. A distinction needs to be done between commodity markets and differentiated markets, like it is done in Bakos’ paper (1997).
So I think that the consumer’s welfare is certainly affected, but the effects are complex because the impacts of several parameters need to be taken into account.
But if I had to analyse the effect of such websites on my consumption, I would say that those websites are considerably increasing my utility. I am someone that is found of making deals. I am tracking the best price on the internet, comparing during hours the different products that are tempting me in order to get the best price-performance ratio. Actually, I am not found of buying on the internet, afraid of cheated about the quality of the product or about the product him-self. I am loyal the real-life shops. But in fact I like to compare the products in advance online. Websites tracking the different offers from diverse sellers are typically a reason that would pushed me to buy goods online. As last, I would say that if the access to such information required a fee, I would never visit those websites.
Sources:
Chen, Y. and Sudhir, K., 2004. When Shopbots Meet Emails: Implications for Price Competition on the Internet.
Baye, M. R. and Morgan, J., 2001, Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets, The American economic review, 91(3), 454-474
Moraga-González, J. L. and Wildenbeest, M. R., 2011. Comparison Sites, IESE Business School Working, 933,
Bakos, J.Y., 1997. Rducing Buyer research cost: Implication for Electronic Marketplace. Management science, 43(12)
Internet shopping is gaining more and more volumes every day. In the United States there are over 200 million online shoppers, and their number is expected to increase progressively over the next few years. We have surpassed the era when consumers were reluctant to buy online. With this new almost reflex of buying online, price comparison is a key element.… Read more
Internet shopping is gaining more and more volumes every day. In the United States there are over 200 million online shoppers, and their number is expected to increase progressively over the next few years. We have surpassed the era when consumers were reluctant to buy online. With this new almost reflex of buying online, price comparison is a key element. Buying at a lower price is the consumers’ dream, hence the shopbots or price comparison sites are facilitating the process.
The question we can ask ourselves is about the credibility of these sites. Is the information accurate? Is the product still available at that low price? Are companies faking low prices only to get potential customers on their own website?
The more important question is: are consumers really paying that low price at the end? Let’s take the clothing example. As an European customer when ordering clothes that come from USA or China, one has to pay taxes on it at arrival. Is the final cost (price + taxes) still as low as their expectations from the comparison? Shouldn’t trustworthy price comparison site warn consumers about that?
In what concerns the business models of these price comparison sites, the most advantageous for them, in my opinion, is of course the price-per-click, but the most honest is the price-per-order. These platforms should also somehow value the number of customers seeking their services and their involvement in the process (ratings, comments). Furthermore they should put in the spot light products according to their relevancy and popularity and not allow companies to pay their way to the top of the list, and emphasize this in order to gain consumers’ confidence.
For a retailer to be on all the platforms in the case they have to pay for it, can be difficult. How can then shopbots really offer the lowest price when they don’t take into account the totality of the offer? In this respect, platforms that offer comparison with free access to seller and buyer are, in my opinion, the most trustworthy ones (Google Product and Bing shopping).
What comparison platforms need to do is adapt their model in order to survive the new reality. Online presence is compulsory for retails nowadays, but choosing the right platform is important for their image. Retailers have access to platforms comparing the comparison sites and choosing the most advantageous for them (for example: http://www.cpcstrategy.com). In this competition between shopbots, platforms need to find the right business model, in order to welcome retailers of every size and budget and satisfy consumers of different needs.
When we first look at a comparison shopping site, we initiatively think that it must be good for the well-being of the customers. Since those sites allow them to compare different prices without any costs for them. The costs are quite low thanks to the online presence of those sites. This tells us that the customers are able to choose… Read more
When we first look at a comparison shopping site, we initiatively think that it must be good for the well-being of the customers. Since those sites allow them to compare different prices without any costs for them. The costs are quite low thanks to the online presence of those sites. This tells us that the customers are able to choose for the lowest price without any costs and so increase the firm competition. And this implies that the prices are reduced. However, is this first thought true?
Of course, when we ask the comparison sites, they will tell you that they are only advantages to use their sites. They emphasize in their marketing messages that their sites allow the customers to save a lot of money, to complete 2 days of shopping in just 1hour, to never miss out on a special, coupon or rebate, etc.
When we take a closer look at how those sites make profit, we understand that they monetized thanks to the fees paid by the firms. The firms pay those fees to be listed in those sites. This allows the comparison sites to charge nothing at all to the customers. This is the implication of the network effect between firms and customers on platforms. Indeed firms attribute a higher value to customers being on those platforms than customers do.
Is it true to assume that these fees do not increase the prices charged by the firms? According to David Ronayne, this is not true. Indeed the firms’ pricing decisions will be affected; he argues that those sites do not really lower the prices. As a matter of fact, since the firms need to pay those fees, those extra costs will be inserted within the bills of the customers. In other words, the extra costs negate the benefit from the increased firm competition. Thus the customer’s well-being is reduced. In his article, David Ronayne gives us some condition in order that this well-being increases with the presence of those comparison shopping sites. The fees the fees charged by those sites and the number of sites available should be limited and it would be necessary to motivate the customers to go to all the comparison shopping sites available. Moreover, he assumes that this can be done by a regulatory body.
Furthermore, from a more psychological point of view, it is also observed that having the possibility to make comparisons does not always allow the customers to get the better deal. This is the consequence of how our brain works. In fact, comparisons mess with our perspectives of what we will like or not. For example, in a situation where we are presented with a standard product in the presence of a more luxurious product, we think that we will not enjoy this standard product. This initiative though is not validated afterwards.
Another inconvenience of those sites, in my opinion, is the fact that the customers generally think that they have the access to information about all products on the market. However this is not true, indeed if a firm does not pay the fees their products are not listed on those sites. So those sites give the false impression to the customers of complete transparency about all products. Additionally, could it be possible that the firms pay to obtain a better ‘position’ on the web sites. This also influences customer’s decision and could prioritize some products over others.
I never personally experienced those comparison sites. I never really trust them for the reason I just expressed above. I am afraid to be influenced into buying a well-known firm’s product instead of less known firms. Since those firms have more resources to pay the sites to make their products more visible. And after reading several articles about those sites, I agree with David Ronayne. The prices increase due to the introduction of those comparison shopping sites.
To conclude, it is important that customers keep a critical mind in front of those comparison sites and not think they have access to all the information with only one comparison shopping site. Besides there is a need of a regulatory body in order to regulate this new economics’ evolution. Otherwise, some anti-competition procedure could appear in the long run.
Lynch & Ariely (2000) examine the effects of lowering search costs for price and quality information and for comparing merchandise on customers’ welfare. The research was conducted specifically on online sales of wine. According to them, it does not just affect price sensitivity, but can also improve the well-being of the clients. The first main reason is that the consumers… Read more
Lynch & Ariely (2000) examine the effects of lowering search costs for price and quality information and for comparing merchandise on customers’ welfare. The research was conducted specifically on online sales of wine. According to them, it does not just affect price sensitivity, but can also improve the well-being of the clients. The first main reason is that the consumers enjoy the shopping experience more because they provide fewer efforts to find information. Secondly, it will improve the decision quality: it helps clients to better match heterogeneous brands to their personal tastes.
There is also an advantage for the sellers: they will benefit from better retention. The authors argue that the defensive strategies of some Internet retailers contribute to their poor sales. “Transparent” merchants are rewarding by consumer. Erlich and Fisher (1982) argue that if information has the potential to reduce the full price of a good (purchase price + cost of search + costs from disappointing purchases), consumers will demand it. “We therefore predicted that by maximizing the transparency of the information environment for consumers, retailers would earn their repeat business—or, alternatively, that consumers would not be trapped in impoverished, defensive sites of low transparency.” (Lycnch & Ariely, (2000)).
Personally, I do not use shopbots a lot. I usually trust my favourite brand without comparing it with other ones. Even when I have to buy an airline ticket, I just look at the Ryanair website. I do not spend time to use a comparison site because it consumes more time. Moreover, I know that cookies can increase the price of the ticket if I search on several websites. So, I just look on only one site.
Bibliography:
Lynch, J. G. & Ariely, D. (2000). Wine Online: Search Costs Affect Competition on Price, Quality, and Distribution. Marketing science, 19(1), 83-103. Online http://people.duke.edu/~dandan/Papers/Other/wine.pdf
The first widely recognized comparison shopping website, known as shopbot, was developed in 1995. Since that moment, many new shopbots have been developed. I personally use some of those website in order to compare principally prices but also qualities and other criteria. Kayak and Skyscanner are two examples of shopbots that I use when I want to… Read more
The first widely recognized comparison shopping website, known as shopbot, was developed in 1995. Since that moment, many new shopbots have been developed. I personally use some of those website in order to compare principally prices but also qualities and other criteria. Kayak and Skyscanner are two examples of shopbots that I use when I want to find the cheapest flight. According to me, it is an easy way to find out the best flight but I do not believe that is the only way. Although I generally trust shopbots that I use, I’m in the habit of verifying results on other sites or on the phone.
I have been using this way of comparing prices even more after the emergence of smartphones apps which allow users to compare directly with their smartphone. For the last years, these apps have been saving shoppers the trouble of searching for a deal online before driving to local stores to see if they can beat it. According to Shopatron’s Retailer eCommerce Study, when out shopping, 86 percent of shoppers consult their smartphones and over half of them are looking to compare prices.
The emergence of comparison shopping websites definitely decreases search cost which is the cost incurred by a consumer to locate the most suitable merchant to purchase from. Lets take two cases : one with an increase in search cost and the second with a decrease in search cost. In the first case, consumer will acquire less information, and hence, he is restricted to fewer choices. This allows merchants to charge higher prices in
equilibrium and the market departs from competitive toward monopolistic outcomes. Conversely, a reduction in search cost would increase price competition, reduce price dispersion, and push the price at which a consumer purchase a product from a merchant to the competitive equilibrium when search cost is zero (Salop & Stiglitz 1976). The reduction in search cost afforded by shopbots could exert a certain pressure on sellers to lower their prices.
However, consumer’s welfare may not be better with the emergence of comparison shopping websites. Indeed, shopbots usually do not cover all the market but only a part of it. In this case, we should use more than one website in order to find the best deal. Furthermore, some products may not be on a shopbot website. Those products may then be cheaper than the others (that are referred on comparison website). In fact, companies must pay for being on that kind of website and this charge may be reflected in prices that consumers will bear.
These different point of views make me doubt regarding to the contribution of these comparison sites on the well being of consumers. In one hand it could be profitable if it covers all the market and if consumers make the comparison process between various shopbots. On the other hand it could be misleading as the consumer does not have access to the entire market (in the case of shopbot gathering a few products within the same market).
Shopbots or comparison shopping agents, which are websites providing online comparison shopping services to millions of shoppers every day, have been helping reduce the search cost of price and retailer related information on the web, and thereby improving market efficiency.
Basically, after finding the product he is interested in, the consumer can than purchase the product listed at shopbot by… Read more
Shopbots or comparison shopping agents, which are websites providing online comparison shopping services to millions of shoppers every day, have been helping reduce the search cost of price and retailer related information on the web, and thereby improving market efficiency.
Basically, after finding the product he is interested in, the consumer can than purchase the product listed at shopbot by clicking on a corresponding hyperlink that will redirect him to the retailer’s website.
Shopbots have become important tools that facilitate search in online markets, leading to increased consumer search.
If we look more in details, Analytical models and empirical research on consumer search across retailers finds that increased search will lead to decreased price levels and a non-monotonic change in price dispersion.
But we also need to keep in mind that as David Ronayne said, price comparison websites will impose two opposing forces on the market and it is going to have an effect on the consumer well being as in one hand the price competition might lower the price but in the other hand the fees that companies have to pay can lead them upping the price.
In my opinion, the consumer well being directly relies on the importance it gives to the search engine and if the utility he gains from it overcome or not the additional fee of the seller.
As the different utilities of the consumers can be range in a wide of different categories, it is difficult to evaluate the effect of those two opposing forces.
In my personal experience, I have been using a lot the price comparison websites and I always have been satisfied.
Even though I would recommend to any consumer using them to make a research on several platforms to be sure to get the best offer.
They permit me to save a lot of time and to give me more information about the products I am looking for, which will allow me to make a more conscious choice.
Finally, I would recommend price comparison websites to make some improvements in order to attract more customers and increase the trust they have about them.
They should for example improved the filter options to enable them to make more targeted research and adapt to their taste.
Shopbots could also become the integrator of recommendations and sales promotions. Their recommender system will appear impartial, as they would not benefit from recommending items that are not based on the relatedness of the items.
1)https://www.fca.org.uk/static/documents/research/price-comparison-website-consumer-research.pdf
2) R. Garfinkel et al. (2008), Shopbot 2.0: Integrating recommendations andpromotions with comparing shopping. Decision Support Systems (46),61–69.
3) Z. Tang et al. (2010), The impact of shopbot use on prices and price dispersion : Evidence from online book retailing. International Journal Industrial Organization (28), 579–590
Nowadays almost any information needed by customers can be found online and the internet has drastically decreased search costs so that anyone can become a "well-informed" user if he wants to. Price comparison websites are one convenient way to decrease this costs and to advise the customer.
First, let's see how these sites can be usefull and what are they main… Read more
Nowadays almost any information needed by customers can be found online and the internet has drastically decreased search costs so that anyone can become a “well-informed” user if he wants to. Price comparison websites are one convenient way to decrease this costs and to advise the customer.
First, let’s see how these sites can be usefull and what are they main advantages for the online customers.
Obviously, the first advantage is time. In a glimpse, the user can be referenced a lot of different seller for the same product so he don’t have to search after it on his web browser. Also, user doesn’t have to enter the same data on each website several times.
Using these sites also allows to have a precise idea of where the cheapest product can be bought, thus it is also a gain of money.
The power of price comparison website is also to display all the offers on the same page, that allows to compare the products in a very effective way (for example if there are some different features between similar products – which can be the case if we deviate a little bit from the hypothesis of Bertrand competition).
Last but not least, as it has been the case for the energy sector in Belgium, more and more governments want to protect the consumer and allow him to switch operator for a minimal cost. With price comparison website, it becomes easier to see the advantages and drawbacks of each products (in Bertrand competition with similar product, only price).
Now let’s have a look at the drawbacks of these websites.
The first one is the fact that only a fraction of the offer is represented and if the consumer want to be fully informed, he will have to visit other websites. Indeed, only firms willing to pay can be displayed on PCW and more interesting deals may not be displayed (sites that sell the same product but cheaper because they don’t make this kind of advertising).
Second, as it is said in the RS Consulting report, consumer often don’t know exactly what they are looking for. For example, with phone operators, it is a very convenient way for firms to sell costly subscription that the consumer doesn’t really need.
Finaly, as it is said in this article, PCW sometimes can increase the prices due to its cost. However, they can also decrease it if they have too much power regarding their market (for example, insurance).
To conclude, PCW are a powerful way to get information in a very quick and convenient way, but consumers that are willing to be fully informed should deepen their search. According to us, the more there is product differenciation, the more this tool can be used in an efficient way.
Buying things on the internet has become a very common thing and it would be hard to find someone who is not familiar with the procedure nowadays. Several instruments are available online to make this easier. Price comparison websites are a well-known example. As their purpose is to avoid users from wasting their time in long researches, people usually perceive… Read more
Buying things on the internet has become a very common thing and it would be hard to find someone who is not familiar with the procedure nowadays. Several instruments are available online to make this easier. Price comparison websites are a well-known example. As their purpose is to avoid users from wasting their time in long researches, people usually perceive these as a very useful tool at their disposal.
But as surprising as it may seem at first sight, this research tool doesn’t necessarily increase the well-being of consumers…
First, there is a problem of reliability: the best prices shown on the price comparison websites are not always correct. For example, concerning hotel advisors, some searchers tested Trivago, KAYAK, Momondo, Discavo and TripAdvisor. The research revealed that the leading website (KAYAK) only showed the best result on top in as less as 67% of the time, which I think the majority of users would qualify as quite disappointing.
Looking closer to the effects of price comparison websites, their effects can be described as two forces going in opposite directions. The first is positive for the consumer a as it makes competition among firms in the market more important and therefore lowers prices globally. The second force is detrimental to consumers. The way these websites make profit is by charging large fees to firms for transferring their clients to them. The problem is that to be able to do this, firms need to increase their prices.
As a result, we need to see which one of the two forces is stronger than the other in order to see if the final effect is positive or negative for consumers.
However, David Ronayne has been able to come with a conclusion. He says that at the beginning of the internet era, the benefit users got from these websites was unquestionably positive. But the situation is much less clearer today as we could suppose consumers would look for price information even if there were no price comparison websites.
The research of David Ronayne even suggests at some point that price comparison websites could be detrimental to consumer’s well-being to different extents depending on the number of sites a consumer looks at: If consumers only check one comparison website, they would be better off wothout it; if they check a part of them, it can be either positive or negative in terms of well-being; and if they look at all the websites, they will be better off with these the existence of this type of websites.
Definitely, the use of internet could give more power to consumers as they are more informed. Therefore, it could force firms to provide higher quality in their products and services leading to increase the well-being of consumers. “The emergence of new websites allowing traveler feedback on certain travel venues and experiences can place pressure on the providers to improve over… Read more
Definitely, the use of internet could give more power to consumers as they are more informed. Therefore, it could force firms to provide higher quality in their products and services leading to increase the well-being of consumers. “The emergence of new websites allowing traveler feedback on certain travel venues and experiences can place pressure on the providers to improve over time” (Mayo and Steinberg, 2007: 15). Furthermore, online comparison sites bring an informational added value to consumers. That’s what a leading price comparison website (Shopper.com) found in its study. “They found that consumers saved about 16% when using this website versus shopping in the store, because the website significantly reduced the cost of finding the lowest priced product” (Baye, Morgan and Scholten, 2003:17-25). In addition, the cost saving seemed to have positive correlation with the number of firms listing their prices on a price comparison platform. Indeed, “The study found that when only two firms list prices on Shopper.com, consumers save 11%. But the savings increase with the number of competitors, jumping to 20% when more than 30 companies list prices” (Baye, Morgan and Scholten, 2003:17-25).
One could argue that these study could be biased by the fact that it was conducted by a price-comparison website leader and therefore could present advantageous results for Shopper.com. Obviously, saying that consumers can spare some costs using price comparison website is intended to attract more people to the platform and, through network effects, more distributor firms.
The consequence of this increase in the information transparency could be that information value about the prices would fall to zero as everybody would know that the cheapest product would be sold. However, due to some fixed cost that both consumers and firms have to pay to access the information on the internet, “the prices are likely to continue to vary over years” (Pindyck and Rubinfeld 2013: 175).
As far as I am concerned, when I experience a price comparison site, it is rather for information gathering about the features of similar products than to compare the price. Indeed, I am not always confident in those websites as prices actually paid are often dependent of the location of the distributor if travel or delivery costs have to be added. Furthermore, I have already experienced failures in registering distributor promotions (in the physical store) on comparison sites which do not always thrive to catch the best deal on the market.
Bibliography:
– Fitzgerald, B. F. (2010). Access to public sector information: law, technology and policy. Sydney University Press.
– Mayo, E., & Steinberg, T. (2007). The power of information. Cabinet Office.
– Pindyck, R. S., & Rubinfeld, D. L. (2013). Microeconomics (8th edn).
For the average customer “price comparison website” is a tool that helps them to find the products they want without losing too much time or energy in endless research. They allow those customers to compare the products they want from different companies and choose the one adapted to their need ( regarding the price usually but also the brand, the… Read more
For the average customer “price comparison website” is a tool that helps them to find the products they want without losing too much time or energy in endless research. They allow those customers to compare the products they want from different companies and choose the one adapted to their need ( regarding the price usually but also the brand, the shipping …)
The question now is: Does the “price comparison site” really positive for those customers?
If the customers are only regarding about getting the product with the fastest and easiest (most of the time) way the answer is like written above “yes”, but regarding the price the paper written by David Ronayne is arguing that there is a double-edged sword effect by using this method of purchasing.
Indeed the fact of clicking on the link will appear as a cost for the society and the more you will click on those links, the more the company will have to pay.
It is then normal to say that the customers will support these expenses in the end with an increasing of the price.
A normal answer to say now is that in a long term perspective the system of price comparison website may not be a good solution ( in a price perspective).
However in my point of view and according to other researchers: this long term scenario of increasing the prices is not going to happen.
The reason is that businesses can get a lot of information thanks to the price comparison websites and in the end use it in order to improve or increase their profitability.
We can explain that with several points:
1) they can help the firm to be “up to date” in price thanks to the constant comparison system.
2) They can help the help to compare its service to the others ( such as the shipping policy, refund policy, payment security …)
3) The ratings of the consumers is a great source of information : The feedback ( even if it was for a competitors) can be a great for the company and can can help it to improve itself or to find potential weaknesses.
4) Can help the company to know what are the trends in their products : the more the customer will click on a specific products the more popular is the product. The company can then concentrate its strategy on this specific product.
In conclusion, I would say that if the companies can see the possibilities that those sites can bring them in terms of information , the supplementary cost they will have for a click will less be seen as a charge but more as an investment not only in marketing but also data collecting. The customer will probably not be so affected as said by mister Ronayne.
We can now answer to the question and say that price comparison websites are positive for the consumers if firms behave in a correct way and use those sites in order to create a competitive advantage .
With the rise of the amount of transferred data each year, more and more people use the internet in their common life. In the case of this article, they make their shopping online and make some research before buying. Due to this increase of research, some comparison shopping sites give a facility to them to compare some ‘homogeneous’ articles. They… Read more
With the rise of the amount of transferred data each year, more and more people use the internet in their common life. In the case of this article, they make their shopping online and make some research before buying. Due to this increase of research, some comparison shopping sites give a facility to them to compare some ‘homogeneous’ articles. They compare the prices and offer information. In my own experience, Booking.com allows me to earn a lot of time. And when I have no experience in travelling, this site was a good help in making my choice. I have booked thanks to Booking.com two nights in a hotel in the centrum which is the best in the centrum and the cheapest. If my research was about articles like smartphones, computers and so on, I will better go on http://www.Mediamarkt.com. I would not go on comparison shopping websites because the websites of the shops are diversified enough for this kind of research. But this is my point of view.
In the point of view of the others consumers, this concept increases their wellbeing. They earn time and then reduce their search costs. But it appears that the competition price between the sellers have increased due to the comparison shopping websites and that the prices have decreased. (2) But the consumers don’t make their own choice in some case. Because of the sponsoring, they see first articles which would not have been firstly presented if we had compared simply the price. The sellers which sometimes make sponsoring make also different prices for the same product. Price dispersion appears also in the comparison shopping sites. Their goal is to earn market share because people are mostly more sensitive to price than to the brand name. In America, 52% of them agree that the price of a product is more important than the brand name. (3). Then the effects of the price decrease on the wellbeing are more important due to this fact.
References:
1) http://www.booking.com/index.fr.html?sid=8082b27856358d8dd8496a51ae843f11;dcid=1
2) The impact of Shopbot use on prices and price dispersion by Zhulei Tang, Alan Montgomery and Michael D. Smith (https://archive.nyu.edu/bitstream/2451/14956/2/USEDBOOK14.pdf)
3) Hajaj, C., Hazon, N. & Sarne, D. (2014). Ordering Effects and Belief Adjustment in the Use of Comparison Shopping Agents, Association for the Advancement of Artificial Intelligence.
First of all price comparison websites (PCW’s) help consumers to achieve in minutes what could take hours of boring job. A lot of people don’t have enough time to compare all prices of each product and that’s why this kind of website could ease the consumer’s life. Moreover, it could also spare money by finding the cheapest and more convenience… Read more
First of all price comparison websites (PCW’s) help consumers to achieve in minutes what could take hours of boring job. A lot of people don’t have enough time to compare all prices of each product and that’s why this kind of website could ease the consumer’s life. Moreover, it could also spare money by finding the cheapest and more convenience product on a market where all products are similars.
Nevertheless, the existence PCW’s have some negative impacts for consumers. David Ronayne, an economic analyst argues that these websites can only push up price of products and the increase of PCW’s inflames this problem. Most of people think that these sites are only create for the benefit of consumers (by increasing competition between providers), but it’s not true. Indeed, PCW’s also want to make benefits and sometimes, PCW’s encourage people to more expensive deals because they receive commission on the transaction. Mr Yeo has said « Some comparison sites have used misleading language to dupe consumers into opting for default options that only display commission earning deals.»
Recently, we have observed the case of Google which was accused to abuse of « its dominant position in web searching to favour its own websites ». Even with famous website (like Google), consumers have to keep their « critical mind ». That’s why they have to be careful about some comparison sites.
Personnaly, I can’t give my trust to PCW’s and I’ll never use it. When I have to buy a gadget on Internet, I inquire on all websites to know the right price of my future product. Firstly, I’m going in a real shop to inform myself over the product. Secondly, I observe different offers on the e-market (Media-markt.be, Amazon.com,…). And finaly, I’m looking for second-hand deals to see if it’s not more attractive. (2ememain.be, ebay.Be,…). After these steps (I dit it for my last online purchase, an Iphone), I have my own opinion and I can choose among different options for my purchase.
From a consumer perspective price-comparison website can be an useful tool. The use of such a site is a convenient approach to layout many sellers’ prices for a particular product that the customer is interested in. This enables the customer to find the cheapest deal for the good searched. Furthermore, such price aggregators also allow the consumer to save… Read more
From a consumer perspective price-comparison website can be an useful tool. The use of such a site is a convenient approach to layout many sellers’ prices for a particular product that the customer is interested in. This enables the customer to find the cheapest deal for the good searched. Furthermore, such price aggregators also allow the consumer to save time. Usually, with a well-working site, the consumer only needs to enter his search criteria once instead of having to relatedly to do so on each seller’s website. Plus, some sites offer detailed filters which is a simple way for any interested party to break down the list of results and only keep those that truly fulfil all the requirements of the consumer.
On the other hand, the increased transparency of prices tend to lead to the consumer only focusing on the price. This might outweigh the different policy features and good service offered ( when comparing energy suppliers or insurers for instance). The result is that consumer do not compare identical goods or services and the comparison is therefore not accurate anymore . Choosing the best deal in terms of price may come with loosing required features,…
In contradiction to the “saving time” argument one other disadvantage of price-comparison website is that they are usually none that cover the entire market. This happens because some sellers refuse to cooperate or pay certain price-comparison websites based on ethics or fees. The consumer then needs to go through a couple of them to be able to compare as much products as possible before making its decision, which is still time consuming. Then another reason why consumer might need to visit multiple sites is that prices may be different on one site compared to another. The most apparent reason for that is that revenue models vary between the comparisons sites, and this usually has an effect on price.
As for my personal opinion, I tend to go through specialized price-comparison website as they give detailed information and reviews about the product which is more useful. But I’m still perplex as to the price transparency. Indeed, I was the victim of “ dynamic pricing” while booking my summer vacations. The prices just kept going up each time I visited or refreshed the price-comparison website and never decreased. I finally had to change computer to benefit from the initial lower prices. This whole experience makes me think twice before trusting prices on such sites and I usually end up going on the different sellers’ websites and do the comparison myself.
References:
Consumer Focus (2013). Comparing comparison sites : Price comparison website mystery shopping report for Consumer Focus by eDigitalResearch.
Consumer Futures (2013). Price comparison websites: consumer perceptions and experiences : A report by RS Consulting for Consumer Futures.
Norling, M. and Eliasson, E. (2009) Price comparison sites in the United Kingdom and Sweden. http://www.nft.nu/en/price-comparison-sites-united-kingdom-and-sweden (retrieved on 20/04/2015)
It’s interesting that you make a link between price comparison websites (the topic of this week) and dynamic pricing (a topic that we will consider next week).
Marine Malherbe
Price comparison websites have become tools that more and more consumers use to make their buying decisions. Indeed, many consumers identify several benefits from using PCWs and have no doubt that these websites make them better off.
In my own opinion, as a consumer, I have a positive opinion on the PCWs. My first idea is that the PCWs allow consumers… Read more
Price comparison websites have become tools that more and more consumers use to make their buying decisions. Indeed, many consumers identify several benefits from using PCWs and have no doubt that these websites make them better off.
In my own opinion, as a consumer, I have a positive opinion on the PCWs. My first idea is that the PCWs allow consumers to quickly access all the information they need. Information that would have takes hours to collect without the websites. Moreover, I think that consumers are saving money by using a PCW as this tool allow them to find the cheapest product. I think that an important majority of consumers have, like me, this positive opinion on the price comparison websites.
However, the economists think differently. In their opinion the effect of the existence of PCWs on consumer is unclear. On the one hand, PWCs, by increasing competition on the market, make the prices decrease. But on the other hands, as firms have to pay fees to be listed on the PCWs, their costs increase which lead to an increase in the prices they fix.
Trough my search on the Internet I tried to understand the reasoning behind this idea. Let me explain you what I have read and understand.
Several articles identify two key variables that determine the impact of the PCWs on the consumers. These two variables are: the number of PCWs that the consumers consult and the number of PCWs.
Regarding the first variable, let’s imagine two extreme situations. In the first one, each consumer checks only one PCW. This situation would give to this site an important share of the market, allowing him to charge high fees to the firms willing to be listed on it. High fees that, as we said above, will be reflected on the prices charged to the consumers. So in such a situation, consumers suffer from the existence of PWCs and would be better off without them.
In the second extreme situation, all consumers check all the existing PCWs. In this case, the market is extremely competitive and firms have to charge low prices. Actually this specific situation is the only one in which the PWCs make consumers better off.
However it seems obvious that such a situation cannot appear in reality. Indeed, in the reality, we stand in an intermediate situation; consumers check some but not all PCWs. That’s why economists tend to be uncertain about the effect of price comparison websites.
Concerning the number of existing PCWs, I think it is important to mention that an increase in this number can have a negative impact for consumers. Indeed, if this number increase while the number of the PWCs that the consumers are checking remains constant, PCWs that are checked gain market share, power and are able to charge higher fees, making the consumers worse off.
As a final word, consumers should maybe review their opinion on the price comparison websites and be more critic, me included.
Nowadays, buying on the internet has became common. In fact, nearly 50% of the french population has buyed at least one product on the internet in 2013 [1]. In this situation, shopbots are an important agent. Indeed, shopobots helps consumer to find all the information about one product, allowing him to compare products. Obviously one of the most important information… Read more
Nowadays, buying on the internet has became common. In fact, nearly 50% of the french population has buyed at least one product on the internet in 2013 [1]. In this situation, shopbots are an important agent. Indeed, shopobots helps consumer to find all the information about one product, allowing him to compare products. Obviously one of the most important information consumer is looking for is the price.
Concretely, shopbots put retailers and consumers in relation. Knowing that if consumer had to pay for this access to information, nobody would use shopbots (Diamond P, 1971). Shopbot only fees retailers and set the access free for the consumers. They are several pricing methods : fixed fee, fee depending on the clicks and finally fee depending on whether consumer has bought the product or not.
Knowing that, it appears quite clearly that consumers will buy the cheapest product and thus that retailers will set the price equal to their unit cost of production. But Hal Varian showed that firms randomly choose their price for a dedicated period. In this case, we say that price dispersion is temporal.
Effect of shopbots on retailers are obvious, it increases competition between firms and thus force them to set lower prices. But the effect on the consumer are less clear.
Following Michael D. Smith [2] and Erik Brynjolfsson [3] prices influence the consumer but also the brand name. This means that consumers will be loyal to brand they know and they like even if the price is sometimes higher than other brands. More than that, Brynjolfsson found out that regarding the fact that consumers made the effort to compare information on one product, they are more price sensitive, firms may thus have to charge lower price on consumers buying through shopbot than the one directly going to their website. This effect is non negligeable.
I will conclude on my personal advice. I have nearly no experience on internet shopping and thus I did not know that concept of shopbot. After having read this article and made some research on the internet, it seems that it migth be benefic for the consumers. But, I am convinced that if consumers know how the system works, the random system of pricing would not be viable anymore. I would wait until the brand I trust set a lower price for the product I want.
Price comparison websites allow you to achieve in minute some complex researches that would take hours. From just consulting a single comparison website, you will get all the information you need without having to investigate on various websites, to collect data through the different company, etc. Therefore, it offers you the benefit of saving times and money. Consumers define it… Read more
Price comparison websites allow you to achieve in minute some complex researches that would take hours. From just consulting a single comparison website, you will get all the information you need without having to investigate on various websites, to collect data through the different company, etc. Therefore, it offers you the benefit of saving times and money. Consumers define it as an “objective facilitator, searching the market and curating results, presenting them in a simple way”.
Many users of price comparison websites feel comfortable and confident when using them. People tend to use one price comparison website as they consider that they are all the same. However, it is still safer to consult more than one to widen the research. Plus, those websites do not cover the entire market, so for the one who find it not enough, research should be extend to other way of comparison. Moreover, you can sometimes be surprised that the amount of money you pay to purchase your good it is not the same as seen on the research results. Indeed, some price comparison websites do not to take into account to hidden extras included in the sale.
To give an example of price comparison website, lets take the well known website “Tripadvisor”. This website allows you to compare the price of hotels proposed by different platforms. Thus, you can visualise where it is cheaper to make your reservation. You cannot book from the website, you are redirected to the website of your choice.
From my personal point of view, I find that price comparison can be a real loss of time. Indeed, sometimes you spend hours to compare the price of a good on different websites or shops in order the save a little. I find it interesting when concerning exceptional or expensive purchases such as computer, holidays,.. But for every day’s goods I gain a certain experience during my life and I know where it is cheaper or more expensive to buy. I acquired a certain “capacity to analyse and compare” goods naturally from visiting one shop to another over time.
Nowadays shobots have become a must for people looking for information and for the best opportunities.They are part of their decision-making process.
The quantity of shopbots is impressive and include a large variety of product category going from simple consumer goods ( prixmoincher.com) to banking and financial services ( Bankrate.com). They represent a remarkable paradox. On the one hand there goal… Read more
Nowadays shobots have become a must for people looking for information and for the best opportunities.They are part of their decision-making process.
The quantity of shopbots is impressive and include a large variety of product category going from simple consumer goods ( prixmoincher.com) to banking and financial services ( Bankrate.com). They represent a remarkable paradox. On the one hand there goal is to enable the consumer to choose the cheapest product with the consequence of lowering the market price (Tang et al. 2007) . On the other hand, to obtain payment and stay a viable business, they charge fees to company. Those fees can take multiple form as described above. Those fees have the effect of reducing the margin for the seller which will generate an increase of the selling price for the consumers and a decrease of their well-being (Ronayne David 2015).
The question that emerges is twofold:
-For the buyer: it is important to determine whether it is more interesting to go through a price comparison that immediately contact a seller. Indeed, a lower number of intermediate can have a positive effect on the price.
-For the seller: it is important to know whether the benefits generated by the traffic coming from shopping robots cover the costs due to the use of this mean.
In addition to these two key issues, there are still other considerations over this problematic. The consumer is increasingly informed on market prices thanks to the internet. It is therefore essential for a firms to be present in this type of website, even only to show their presence on the market, regardless of the prices.
Another problem for the consumer is that sellers always find stratagems to make it difficult to compare. This is done by providing for the same product additional services, insurance, delivery delays, warranty, and other complementary facilities, making the value of the product and price comparison much less obvious.
In addition to that lot of retailers try to reduce effectiveness of shopbots by adopting bait-and switch strategies or by encouraging shopbots to sort tables based on retailer advertising rather than price. (Ellison and Ellison, 2001). Indeed appear in shopbots is often a marketing tools to attract the consumers on the website of the retailer where he try to sell them a different product.
Last consideration: many sellers (Air Company for example such as Ryan air) show very competitive price in this kind of engine (such as momondo.be), but it is only at the end of the transaction (at the payment phase) that the customer is aware of the actual cost and that the product is probably no longer the most competitive of the market.
I have for my part trying to reserve a fly. After comparing the price, the best option was the travel agency Rumbo but after looking further at the last phase of the reservation it turned out that I had to pay with a specific debit card to receive that price and that lot of conditions written in small applied including additional cost for the luggages or for the airport taxes.
I feel at that time swindle.
I personally think that price comparator therefore still have a bright future provided not having too negative influence on prices because of fees. But especially by enforcing the respect of a transparency charter by the sellers and giving the possibility for consumers to find easily the best market price for the same product.
Sources
– Smith, M.D.,(2002). The Impact of Shopbots on Electronic Markets., Journal of the Academy of Marketing Science, 30(4), 442-450.
– Baye, Michael R, John Morgan, and Patrick Scholten (2004), “Price dispersion in the small and in the large: Evidence from an internet price comparison site.” The Journal of Industrial Economics, 52, 463–496.
– http://revel.unice.fr/eriep/?id=3212#tocto1n4
If we want to think about consumer well being in comparison shopping sites, we have to know the utility that consumers gives to the reduction of searching costs given by the platform in comparison with the utility lost by the sellers fee. If the consumer gains more utility with less searching costs than he loses with the slightly more expensive… Read more
If we want to think about consumer well being in comparison shopping sites, we have to know the utility that consumers gives to the reduction of searching costs given by the platform in comparison with the utility lost by the sellers fee. If the consumer gains more utility with less searching costs than he loses with the slightly more expensive price caused by the fee, then the allocation is efficient. If not, then the consumer loses some well being. The problem with this approach is that every customer might gives different utilities to the reducing searching cost, even for homogeneous goods. In a consumer market research, Atticus, a market research consultancy, found that consumers behavior towards the comparison shopping site can be segmented according to their attitude to risk, which is going to have an impact on their utility. The consumer who perceive a risk of not being insured sufficiently will be more involved in the research process [1]. Therefore, those ones will give less utility to the reduction of searching costs, for they will continue to search afterwards. For those customers, the system have more chances to be inefficient.
If we do not consider this approach, we can look for efficiency via different parameters. When products are homogenous, Gonzales & Wildenbeest (2011) states that product differentiation and price discrimination play a distinctive role in efficiency. If the comparison site offers horizontally differentiated goods, it aggregates information in one place, therefore becoming more efficient than a decentralized marketplace. In equilibrium, even if there’s no possibility for price discrimination, the site attracts all the players and creates an efficient outcome [2].
Moreover, efficiency can be obtained by reducing the price via other parameters. The price setting might be influenced by the reputation of the seller. Liu, Feng & Wei (2012) showed that when the number of “informed buyers” exceeds a certain level (which is, by definition, often the case for comparison shopping sites), sellers with a high reputation tend to set a lower price than sellers with a lower reputation [3]. Finally, the type of products can change the way the comparison shopping website influence the price. Tang, Smith & Montgomery (2007) showed for the book industry that a 1% increase in shopbots usage reduces on average the price of 0,41$, stating that it is only for the book industry [4].
[1] Atticus (2014). Price comparison website: Consumer market research. Prepared for the Financial Conduct Authority. PCW Research Report April 2014, p.8.
[2] Moraga-González, J. L., & Wildenbeest, M. R. (2011). Comparison sites.
[3] Liu, Y., Feng, J., & Wei, K. K. (2012). Negative price premium effect in online market—The impact of competition and buyer informativeness on the pricing strategies of sellers with different reputation levels. Decision Support Systems, 54(1), 681-690.
[4] Tang, Z., Smith, M., & Montgomery, A. (2007). The impact of shopbot use on prices and price dispersion: evidence from online book retailing, Heinz research. vol 47.
Price comparison websites aim to help decision-making of consumers when purchasing a product or a service. We face a multisided platform with these different actors : shopbots or comparison shopping websites that play the role of intermediaries, sellers or firms that pay to advertise their prices and users who access the list of prices. The main examples of comparison websites… Read more
Price comparison websites aim to help decision-making of consumers when purchasing a product or a service. We face a multisided platform with these different actors : shopbots or comparison shopping websites that play the role of intermediaries, sellers or firms that pay to advertise their prices and users who access the list of prices. The main examples of comparison websites that come to my mind are flights comparator websites (such as Google Flights, Opodo, Bourse-des-vols, Kayak and Skyscanner) or hotels comparator websites (such as Trivago and Tripadvisor).
Such websites could give consumers biased information due to the following reasons :
– They do not cover all the market, but only some providers. Nevertheless, they give the feeling that there is no need to go on other websites to find the best deal. Consumers need to make a more detailed analysis by themselves. Moreover, it appeared that prices can vary for a same product or service, depending on the price comparison website.
– They do not take into account all the information of the different offers and all the costs charged to consumers. For example, if we take a flight comparator website, they may not take into account the conditions and prices of cancellation insurance, of reimbursement, of date changes, of additional luggage, etc. The comparison based on prices takes into account only one element – the price – among other criteria. In other words, this is not a ranking based on value for money but it is a ranking based only on cheapest deals. Consumers need to be vigilant and should not take the result that appears at the top of the list as the cheapest one on the market. In my opinion such websites are useful for a basic search in order to get a first insight into the different offers and the different providers of the market but it will never replace the comparison that consumers make by themselves. Consumers should not trust them blindly but they should verify and cross-check results on other websites in order to get all the information.
– They offer a better positioning if companies pay an extra fee. We have seen during a conference in E-marketing that the model pay-per-click (or cost-per-click) allows companies to choose three things : their positioning, the key words for which they are found and their targeting scope. Therefore providers can pay price comparison websites in order to influence the comparison results.
For all these reasons, such websites can mislead consumers who are not treated fairly and transparently.
In order to counteract those comparison websites, some companies have created loyalty systems (loyalty cards, etc). For example if we book regularly with the same airline company or with the same hotel chain (for example Accor), we can earn points that allow us to get deals, cheaper flights or rooms, a more personalized service, etc. Consumers know that by being member or by being loyal to a brand their problems will be resolved more positively, more quickly and more easily than for a non-member consumer. This is explained by the fact that companies do not want to lose their “premium” consumers.
For a high proportion of consumers, comparison websites form part of the usual decision-making process and they see them as convenient and useful tools. However, I agree with the theory of Salop and Stiglitz that says that there are different kinds of consumers :
1) Those who shop around and analyze the whole market in order to get the best deal (which is not necessarily the best one on the comparison website). They will push the analysis as far as they can.
2) Those who trust comparison websites and take the best deal offered, without actively seeking out on other websites. They feel that the information they access is reliable.
3) Those who want to buy no matter the price. They go directly on the website of a provider they know, even if they could pay a lower price on a competitor’s website.
To conclude, it is hard to say whether those websites are fair or misleading tools for consumers. On one hand, they will allow consumers to get better prices as they force companies to set lower prices because of the competition. But on the other hand, as comparison websites charge companies for this service, these charges will be supported by consumers at the end. The effect on the well-being will depend on the kind of consumer we are facing. Consumers who are not used to compare prices will save time and money and they will make better and more informed choices. They are the kind of consumers who do not mind how the websites make their money, as long as they can get a good deal. On the contrary, consumers who are used to compare prices by themselves will have to cover a part of the costs so prices could be higher than if these websites did not exist. In short, there will be losers and winners.
Price comparison website allow consumers to have lots of information on goods and services provided by firms. It makes the search easier for deals and to compare prices.
Those websites have different methods to charge the companies that are listed on their website. Obviously, they increase the competition between firms. Indeed, since it is easier to compare prices for consumers,… Read more
Price comparison website allow consumers to have lots of information on goods and services provided by firms. It makes the search easier for deals and to compare prices.
Those websites have different methods to charge the companies that are listed on their website. Obviously, they increase the competition between firms. Indeed, since it is easier to compare prices for consumers, firms tend to lower their prices in order to attract them.
Firms set different prices for the same goods, some sell at the competitive price, other at a higher price. Baye and Morgan show that price dispersion is also true is an environment were all consumers are informed. In the article of Baye and Morgan, they explain that it is optimal for gatekeepers to let the consumers get the information for free because of a problem of free riders.
But the question is: What are the effects of price comparison website on the well-being of consumers?
Indeed, those website also have an impact on the pricing decisions of the firms.
In the article of David Ronayne, there is a comparison of the consumers’ well-being in a world without and with price comparison websites. When there are no price comparison websites, firms only care about the price of firms that they are compared to, and not all the firms.
With price comparison sites, firms make a decision for their prices once they know the fees to pay in order to be listed on the comparison sites. As said above, price dispersion is the rule,so consumers are better off checking the price comparison websites.
When the fee is high, consumers pay a higher price for goods. On the contrary the prices are lower when the number of firms that compete with each other increase. However, Ronayne D. shows that there don’t exist a number of firms sufficiently high in order to beat the first effect.
The price comparison websites, actually, decrease the well-being of consumers.
Comments for How do comparison shopping sites make a living? An update
Read more
I don’t often use comparison sites, but it happens more and mare as I’m trying to find the best deal for my plane ticket to fly to Asia for my Erasmus.
Customers usually use these sites as they think there is too much information for them to look at. They put some keywords in the research bar, sort out the products/services by prices and look more closely at the 5-10 top products and then make their choice.
There is actually a first choice to make: which website should the customer use?
He has several options: he might have heard about a good comparison website thanks to word-of-mouth, social medias (especially the liking and sharing of your friends), which are, as we saw in the class « E-Marketing », earned media that can’t be controlled by companies. He then will have enough faith in these websites to use them without doubting them.
But if the customer doesn’t know any of these websites, one logical reasoning is to search for one on the Internet, for instance, on Google. As most people know, companies pay Google to be the 5-top entries for a precised research. That will lead the customer to go to a random comparison sites.
Maybe the next step should be a comparison website… for comparison sites!
Another important point is the quality of the product. On websites like Amazon and eBay, you can compare prices but you can choose between new or used product. New products can be easily compared, as the price is the main thing the customer will focus on. According to Lee (2007): “A price comparison site relieves buyers from anxiety about information asymmetry and consequential loss related to the price.”
Products that already have been used are cheaper, but might be of less quality. Customers have then to « evaluate » if the cheaper price is actually a better option, as the quality might be really poor.
Thus the customer has to compare used products among them, and then compare the winner to the best deal of the new products. This seems like a lot of trouble, as comparison sites are supposed to help the customer. Of course, this only apply to a certain category of products that suffer of longevity and a long use.
My last point is that there might be other key factors for the customers than the price. Customers are more and more aware of disrespect towards environment of human rights and the respect of nature and human might be a key features for them. Unfortunately, comparison shopping websites don’t really tend to take them into account (but neither really do supermarkets).
One interesting website and app in this domain is Noteo. Thanks to the digital code, it allows the customer first to get a rate of the product thanks to four features: health, environment, social and budget. Second, you can actually compare them by theme: beauty, food, drinks… Unfortunately, there are only 60.000 products that have been analysed and they are consumable goods as creams, coffees, pastas, etc.
My conclusion is that comparison website still have a long way to go before they become really transparent and thus help the customer with all their might.
Sources
Show lessHyung Seok, L., Dong Soo, J., & Jemi, C. (2011). Effects of Information Intermediary Functions of Comparison Shopping Sites on Customer Loyalty. Journal Of Internet Banking & Commerce, 16(2), 1-11.
Lee, S. (2007). The effects of price comparison site on price perception and value perception of online consumer.
http://www.noteo.info/ Retrieved on 21/04/2015.
Read more
Before talking about the impact of comparison sites on the consumer, I believe it’s relevant to understand the origin of the creation of these sites.
In the previous article we studied, named “Do recommendation systems make the tail longer or shorter? “, we established that isolating personalized information out of this ocean of information that is Internet is a possible task.
In the case of comparison sites, these were created in order to collect and compare the different available products according to the potential buyer’s buying criteria (price, quality, warranty).
First of all, 70% of the consumers wish to gather information about different possible offers before purchasing something online (1). Identifying and manually comparing each alternative offer would take forever. Comparison sites are here to help the consumer to make decisions.
Indeed, these sites are so popular because they allows anyone to become a “well-informed consumer” effortlessly, information that nowadays every online shopper needs.This need for support is a direct result of the unbelievably wide range of products / service that are provided to consumers so easily throught the Internet.
In addition, international laws tend to make the competition more and more perfect (no more / less spawning customs, decrease of transport costs, etc.). This leaves space for a good number of products to compete for market shares, and therefore a good number of consumers in need of a comparison system.
Unfortunately, there is one twist, which as usual, was born out of the lucrative possibilities these sites created. Indeed, they started to require that the seller pays to reference his product on the site. Otherwise, the product will not be showed to customers. Consumers will think therefore that they are making the best choice based on the proposals of comparison sites, but it may be that the best deal is just not referenced.
In addition, to ensure that their offer is as visible as possible, some brands do not hesitate to pay more. This ranking can therefore be in the favor of the merchant, which is not to the benefit of the consumer.
However, more and more companies are implementing a strategy called “blackout” which involves complicating their products description to make it more difficult to compare. For example: a proposal package, unclear policies regarding shipping cost, … The goal is to break away from this dependence.
To conclude, these systems were initally created to help the consumer sort out all the different offers the internet can contain, and inform him so he could make the best choice. However, these sites have become so common and powerful that it has become almost essential for a vendor to place his products on a comparison site, even if it means paying your way to the top of the list, which is not at the advantage of the consumer.
Source:
1: http://www.lefigaro.fr/conso/2013/08/12/05007-20130812ARTFIG00354-le-boom-des-comparateurs-de-prix.php
Show lesshttps://www.ipdigit.eu/2012/04/do-recommendation-systems-make-the-tail-longer-or-shorter/
http://www.lenouveleconomiste.fr/lesdossiers/les-sites-de-comparaison-15289/
http://www.expertprogrammanagement.com/2012/03/the-business-model-of-price-comparison-sites/
http://www.ft.com/cms/s/0/7281378a-55c9-11e3-b6e7-00144feabdc0.html#axzz3XyjSw7cc
Read more
Shopbots is a contraction of shopping robots. In fact it is about websites that group information about a wide range of products and that permits consumers to compare the different sales propositions. For consumers, this means a huge time saving in terms of research because they are able to track effectively the best offer. All the information is grouped on one website and users don’t have to waste time in comparing the different offers found on retailer’s websites.
From an economic point of view, this means that the search costs of the customers are considerably reduced. Intuitively, when the cost of an agent is reduced, we tend to think that his utility becomes better off. In addition, the fact that all the products are listed on one site results in a fierce competition between the different sellers, which drops the prices. Like Baye and Morgan say in their conclusion: “consumers gain and firms lose from the creation of a market for information”. But the research I made changed my mind and pushed me to think that the situation is complex. It seems like there are many other parameters that have to be taken into account. From a paper written by Chen and Sudhir, we learn that those shopbots also permits sellers to target better buyers by analysing their data which can affect positively the utility of the seller. This is without taking into account that the shopbot could ask a fee to sellers and sometimes to buyers. In different papers about comparison sites, the one written by Moraga and Wildenbeest for example, we learn that there is also a difference of effect according to the type of good that is sold. A distinction needs to be done between commodity markets and differentiated markets, like it is done in Bakos’ paper (1997).
So I think that the consumer’s welfare is certainly affected, but the effects are complex because the impacts of several parameters need to be taken into account.
But if I had to analyse the effect of such websites on my consumption, I would say that those websites are considerably increasing my utility. I am someone that is found of making deals. I am tracking the best price on the internet, comparing during hours the different products that are tempting me in order to get the best price-performance ratio. Actually, I am not found of buying on the internet, afraid of cheated about the quality of the product or about the product him-self. I am loyal the real-life shops. But in fact I like to compare the products in advance online. Websites tracking the different offers from diverse sellers are typically a reason that would pushed me to buy goods online. As last, I would say that if the access to such information required a fee, I would never visit those websites.
Sources:
Chen, Y. and Sudhir, K., 2004. When Shopbots Meet Emails: Implications for Price Competition on the Internet.
Baye, M. R. and Morgan, J., 2001, Information Gatekeepers on the Internet and the Competitiveness of Homogeneous Product Markets, The American economic review, 91(3), 454-474
Moraga-González, J. L. and Wildenbeest, M. R., 2011. Comparison Sites, IESE Business School Working, 933,
Bakos, J.Y., 1997. Rducing Buyer research cost: Implication for Electronic Marketplace. Management science, 43(12)
Show lessRead more
Internet shopping is gaining more and more volumes every day. In the United States there are over 200 million online shoppers, and their number is expected to increase progressively over the next few years. We have surpassed the era when consumers were reluctant to buy online. With this new almost reflex of buying online, price comparison is a key element. Buying at a lower price is the consumers’ dream, hence the shopbots or price comparison sites are facilitating the process.
The question we can ask ourselves is about the credibility of these sites. Is the information accurate? Is the product still available at that low price? Are companies faking low prices only to get potential customers on their own website?
The more important question is: are consumers really paying that low price at the end? Let’s take the clothing example. As an European customer when ordering clothes that come from USA or China, one has to pay taxes on it at arrival. Is the final cost (price + taxes) still as low as their expectations from the comparison? Shouldn’t trustworthy price comparison site warn consumers about that?
In what concerns the business models of these price comparison sites, the most advantageous for them, in my opinion, is of course the price-per-click, but the most honest is the price-per-order. These platforms should also somehow value the number of customers seeking their services and their involvement in the process (ratings, comments). Furthermore they should put in the spot light products according to their relevancy and popularity and not allow companies to pay their way to the top of the list, and emphasize this in order to gain consumers’ confidence.
For a retailer to be on all the platforms in the case they have to pay for it, can be difficult. How can then shopbots really offer the lowest price when they don’t take into account the totality of the offer? In this respect, platforms that offer comparison with free access to seller and buyer are, in my opinion, the most trustworthy ones (Google Product and Bing shopping).
What comparison platforms need to do is adapt their model in order to survive the new reality. Online presence is compulsory for retails nowadays, but choosing the right platform is important for their image. Retailers have access to platforms comparing the comparison sites and choosing the most advantageous for them (for example: http://www.cpcstrategy.com). In this competition between shopbots, platforms need to find the right business model, in order to welcome retailers of every size and budget and satisfy consumers of different needs.
http://www.statista.com/statistics/183755/number-of-us-internet-shoppers-since-2009/
Show lesshttp://www.cpcstrategy.com/blog/2013/06/ecommerce-platform-comparison/
Read more
When we first look at a comparison shopping site, we initiatively think that it must be good for the well-being of the customers. Since those sites allow them to compare different prices without any costs for them. The costs are quite low thanks to the online presence of those sites. This tells us that the customers are able to choose for the lowest price without any costs and so increase the firm competition. And this implies that the prices are reduced. However, is this first thought true?
Of course, when we ask the comparison sites, they will tell you that they are only advantages to use their sites. They emphasize in their marketing messages that their sites allow the customers to save a lot of money, to complete 2 days of shopping in just 1hour, to never miss out on a special, coupon or rebate, etc.
When we take a closer look at how those sites make profit, we understand that they monetized thanks to the fees paid by the firms. The firms pay those fees to be listed in those sites. This allows the comparison sites to charge nothing at all to the customers. This is the implication of the network effect between firms and customers on platforms. Indeed firms attribute a higher value to customers being on those platforms than customers do.
Is it true to assume that these fees do not increase the prices charged by the firms? According to David Ronayne, this is not true. Indeed the firms’ pricing decisions will be affected; he argues that those sites do not really lower the prices. As a matter of fact, since the firms need to pay those fees, those extra costs will be inserted within the bills of the customers. In other words, the extra costs negate the benefit from the increased firm competition. Thus the customer’s well-being is reduced. In his article, David Ronayne gives us some condition in order that this well-being increases with the presence of those comparison shopping sites. The fees the fees charged by those sites and the number of sites available should be limited and it would be necessary to motivate the customers to go to all the comparison shopping sites available. Moreover, he assumes that this can be done by a regulatory body.
Furthermore, from a more psychological point of view, it is also observed that having the possibility to make comparisons does not always allow the customers to get the better deal. This is the consequence of how our brain works. In fact, comparisons mess with our perspectives of what we will like or not. For example, in a situation where we are presented with a standard product in the presence of a more luxurious product, we think that we will not enjoy this standard product. This initiative though is not validated afterwards.
Another inconvenience of those sites, in my opinion, is the fact that the customers generally think that they have the access to information about all products on the market. However this is not true, indeed if a firm does not pay the fees their products are not listed on those sites. So those sites give the false impression to the customers of complete transparency about all products. Additionally, could it be possible that the firms pay to obtain a better ‘position’ on the web sites. This also influences customer’s decision and could prioritize some products over others.
I never personally experienced those comparison sites. I never really trust them for the reason I just expressed above. I am afraid to be influenced into buying a well-known firm’s product instead of less known firms. Since those firms have more resources to pay the sites to make their products more visible. And after reading several articles about those sites, I agree with David Ronayne. The prices increase due to the introduction of those comparison shopping sites.
To conclude, it is important that customers keep a critical mind in front of those comparison sites and not think they have access to all the information with only one comparison shopping site. Besides there is a need of a regulatory body in order to regulate this new economics’ evolution. Otherwise, some anti-competition procedure could appear in the long run.
Sources:
– Four Divisions. (2015). Comparison Shopping. En ligne sur Four Divisions.
Show lesshttp://fourdivisionsllc.com/comparison-shopping.php
– PsyBlog. (2011). The dangers of comparison shopping. En ligne sur Psyblog.
http://www.spring.org.uk/2011/10/how-comparison-shopping-makes-us-unhappy.php
– Moraga-Gonzalez, J.L. & Wildenbeest, M.R. (2011). Comparison Sites.
– Ronayne, D. (2015). Price Comparison Websites.
Read more
Lynch & Ariely (2000) examine the effects of lowering search costs for price and quality information and for comparing merchandise on customers’ welfare. The research was conducted specifically on online sales of wine. According to them, it does not just affect price sensitivity, but can also improve the well-being of the clients. The first main reason is that the consumers enjoy the shopping experience more because they provide fewer efforts to find information. Secondly, it will improve the decision quality: it helps clients to better match heterogeneous brands to their personal tastes.
There is also an advantage for the sellers: they will benefit from better retention. The authors argue that the defensive strategies of some Internet retailers contribute to their poor sales. “Transparent” merchants are rewarding by consumer. Erlich and Fisher (1982) argue that if information has the potential to reduce the full price of a good (purchase price + cost of search + costs from disappointing purchases), consumers will demand it. “We therefore predicted that by maximizing the transparency of the information environment for consumers, retailers would earn their repeat business—or, alternatively, that consumers would not be trapped in impoverished, defensive sites of low transparency.” (Lycnch & Ariely, (2000)).
Personally, I do not use shopbots a lot. I usually trust my favourite brand without comparing it with other ones. Even when I have to buy an airline ticket, I just look at the Ryanair website. I do not spend time to use a comparison site because it consumes more time. Moreover, I know that cookies can increase the price of the ticket if I search on several websites. So, I just look on only one site.
Bibliography:
Lynch, J. G. & Ariely, D. (2000). Wine Online: Search Costs Affect Competition on Price, Quality, and Distribution. Marketing science, 19(1), 83-103. Online http://people.duke.edu/~dandan/Papers/Other/wine.pdf
Show lessRead more
The first widely recognized comparison shopping website, known as shopbot, was developed in 1995. Since that moment, many new shopbots have been developed. I personally use some of those website in order to compare principally prices but also qualities and other criteria. Kayak and Skyscanner are two examples of shopbots that I use when I want to find the cheapest flight. According to me, it is an easy way to find out the best flight but I do not believe that is the only way. Although I generally trust shopbots that I use, I’m in the habit of verifying results on other sites or on the phone.
I have been using this way of comparing prices even more after the emergence of smartphones apps which allow users to compare directly with their smartphone. For the last years, these apps have been saving shoppers the trouble of searching for a deal online before driving to local stores to see if they can beat it. According to Shopatron’s Retailer eCommerce Study, when out shopping, 86 percent of shoppers consult their smartphones and over half of them are looking to compare prices.
The emergence of comparison shopping websites definitely decreases search cost which is the cost incurred by a consumer to locate the most suitable merchant to purchase from. Lets take two cases : one with an increase in search cost and the second with a decrease in search cost. In the first case, consumer will acquire less information, and hence, he is restricted to fewer choices. This allows merchants to charge higher prices in
equilibrium and the market departs from competitive toward monopolistic outcomes. Conversely, a reduction in search cost would increase price competition, reduce price dispersion, and push the price at which a consumer purchase a product from a merchant to the competitive equilibrium when search cost is zero (Salop & Stiglitz 1976). The reduction in search cost afforded by shopbots could exert a certain pressure on sellers to lower their prices.
However, consumer’s welfare may not be better with the emergence of comparison shopping websites. Indeed, shopbots usually do not cover all the market but only a part of it. In this case, we should use more than one website in order to find the best deal. Furthermore, some products may not be on a shopbot website. Those products may then be cheaper than the others (that are referred on comparison website). In fact, companies must pay for being on that kind of website and this charge may be reflected in prices that consumers will bear.
These different point of views make me doubt regarding to the contribution of these comparison sites on the well being of consumers. In one hand it could be profitable if it covers all the market and if consumers make the comparison process between various shopbots. On the other hand it could be misleading as the consumer does not have access to the entire market (in the case of shopbot gathering a few products within the same market).
Sources :
http://en.wikipedia.org/wiki/Comparison_shopping_website
Show lesshttp://ecommerce.shopatron.com/blog/5-ways-shoppers-are-using-their-mobile-phones-your-store
http://www.consumerfutures.org.uk/files/2013/07/Price-Comparison-Websites-Consumer-perceptions-and-experiences.pdf
http://www.nft.nu/nb/price-comparison-sites-united-kingdom-and-sweden
Read more
Shopbots or comparison shopping agents, which are websites providing online comparison shopping services to millions of shoppers every day, have been helping reduce the search cost of price and retailer related information on the web, and thereby improving market efficiency.
Basically, after finding the product he is interested in, the consumer can than purchase the product listed at shopbot by clicking on a corresponding hyperlink that will redirect him to the retailer’s website.
Shopbots have become important tools that facilitate search in online markets, leading to increased consumer search.
If we look more in details, Analytical models and empirical research on consumer search across retailers finds that increased search will lead to decreased price levels and a non-monotonic change in price dispersion.
But we also need to keep in mind that as David Ronayne said, price comparison websites will impose two opposing forces on the market and it is going to have an effect on the consumer well being as in one hand the price competition might lower the price but in the other hand the fees that companies have to pay can lead them upping the price.
In my opinion, the consumer well being directly relies on the importance it gives to the search engine and if the utility he gains from it overcome or not the additional fee of the seller.
As the different utilities of the consumers can be range in a wide of different categories, it is difficult to evaluate the effect of those two opposing forces.
In my personal experience, I have been using a lot the price comparison websites and I always have been satisfied.
Even though I would recommend to any consumer using them to make a research on several platforms to be sure to get the best offer.
They permit me to save a lot of time and to give me more information about the products I am looking for, which will allow me to make a more conscious choice.
Finally, I would recommend price comparison websites to make some improvements in order to attract more customers and increase the trust they have about them.
They should for example improved the filter options to enable them to make more targeted research and adapt to their taste.
Shopbots could also become the integrator of recommendations and sales promotions. Their recommender system will appear impartial, as they would not benefit from recommending items that are not based on the relatedness of the items.
1)https://www.fca.org.uk/static/documents/research/price-comparison-website-consumer-research.pdf
Show less2) R. Garfinkel et al. (2008), Shopbot 2.0: Integrating recommendations andpromotions with comparing shopping. Decision Support Systems (46),61–69.
3) Z. Tang et al. (2010), The impact of shopbot use on prices and price dispersion : Evidence from online book retailing. International Journal Industrial Organization (28), 579–590
Read more
Nowadays almost any information needed by customers can be found online and the internet has drastically decreased search costs so that anyone can become a “well-informed” user if he wants to. Price comparison websites are one convenient way to decrease this costs and to advise the customer.
First, let’s see how these sites can be usefull and what are they main advantages for the online customers.
Obviously, the first advantage is time. In a glimpse, the user can be referenced a lot of different seller for the same product so he don’t have to search after it on his web browser. Also, user doesn’t have to enter the same data on each website several times.
Using these sites also allows to have a precise idea of where the cheapest product can be bought, thus it is also a gain of money.
The power of price comparison website is also to display all the offers on the same page, that allows to compare the products in a very effective way (for example if there are some different features between similar products – which can be the case if we deviate a little bit from the hypothesis of Bertrand competition).
Last but not least, as it has been the case for the energy sector in Belgium, more and more governments want to protect the consumer and allow him to switch operator for a minimal cost. With price comparison website, it becomes easier to see the advantages and drawbacks of each products (in Bertrand competition with similar product, only price).
Now let’s have a look at the drawbacks of these websites.
The first one is the fact that only a fraction of the offer is represented and if the consumer want to be fully informed, he will have to visit other websites. Indeed, only firms willing to pay can be displayed on PCW and more interesting deals may not be displayed (sites that sell the same product but cheaper because they don’t make this kind of advertising).
Second, as it is said in the RS Consulting report, consumer often don’t know exactly what they are looking for. For example, with phone operators, it is a very convenient way for firms to sell costly subscription that the consumer doesn’t really need.
Finaly, as it is said in this article, PCW sometimes can increase the prices due to its cost. However, they can also decrease it if they have too much power regarding their market (for example, insurance).
To conclude, PCW are a powerful way to get information in a very quick and convenient way, but consumers that are willing to be fully informed should deepen their search. According to us, the more there is product differenciation, the more this tool can be used in an efficient way.
Show lessRead more
Buying things on the internet has become a very common thing and it would be hard to find someone who is not familiar with the procedure nowadays. Several instruments are available online to make this easier. Price comparison websites are a well-known example. As their purpose is to avoid users from wasting their time in long researches, people usually perceive these as a very useful tool at their disposal.
But as surprising as it may seem at first sight, this research tool doesn’t necessarily increase the well-being of consumers…
First, there is a problem of reliability: the best prices shown on the price comparison websites are not always correct. For example, concerning hotel advisors, some searchers tested Trivago, KAYAK, Momondo, Discavo and TripAdvisor. The research revealed that the leading website (KAYAK) only showed the best result on top in as less as 67% of the time, which I think the majority of users would qualify as quite disappointing.
Looking closer to the effects of price comparison websites, their effects can be described as two forces going in opposite directions. The first is positive for the consumer a as it makes competition among firms in the market more important and therefore lowers prices globally. The second force is detrimental to consumers. The way these websites make profit is by charging large fees to firms for transferring their clients to them. The problem is that to be able to do this, firms need to increase their prices.
As a result, we need to see which one of the two forces is stronger than the other in order to see if the final effect is positive or negative for consumers.
However, David Ronayne has been able to come with a conclusion. He says that at the beginning of the internet era, the benefit users got from these websites was unquestionably positive. But the situation is much less clearer today as we could suppose consumers would look for price information even if there were no price comparison websites.
The research of David Ronayne even suggests at some point that price comparison websites could be detrimental to consumer’s well-being to different extents depending on the number of sites a consumer looks at: If consumers only check one comparison website, they would be better off wothout it; if they check a part of them, it can be either positive or negative in terms of well-being; and if they look at all the websites, they will be better off with these the existence of this type of websites.
Sources:
http://www.tourism-review.com/hotel-comparison-websites-prove-not-to-be-perfect-news4487
http://theconversation.com/how-price-comparison-websites-may-do-customers-a-disservice-38241
Ps: for more mathematical part of the research of David Ronayne (http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1056a_ronayne.pdf%20)
Show lessRead more
Definitely, the use of internet could give more power to consumers as they are more informed. Therefore, it could force firms to provide higher quality in their products and services leading to increase the well-being of consumers. “The emergence of new websites allowing traveler feedback on certain travel venues and experiences can place pressure on the providers to improve over time” (Mayo and Steinberg, 2007: 15). Furthermore, online comparison sites bring an informational added value to consumers. That’s what a leading price comparison website (Shopper.com) found in its study. “They found that consumers saved about 16% when using this website versus shopping in the store, because the website significantly reduced the cost of finding the lowest priced product” (Baye, Morgan and Scholten, 2003:17-25). In addition, the cost saving seemed to have positive correlation with the number of firms listing their prices on a price comparison platform. Indeed, “The study found that when only two firms list prices on Shopper.com, consumers save 11%. But the savings increase with the number of competitors, jumping to 20% when more than 30 companies list prices” (Baye, Morgan and Scholten, 2003:17-25).
One could argue that these study could be biased by the fact that it was conducted by a price-comparison website leader and therefore could present advantageous results for Shopper.com. Obviously, saying that consumers can spare some costs using price comparison website is intended to attract more people to the platform and, through network effects, more distributor firms.
The consequence of this increase in the information transparency could be that information value about the prices would fall to zero as everybody would know that the cheapest product would be sold. However, due to some fixed cost that both consumers and firms have to pay to access the information on the internet, “the prices are likely to continue to vary over years” (Pindyck and Rubinfeld 2013: 175).
As far as I am concerned, when I experience a price comparison site, it is rather for information gathering about the features of similar products than to compare the price. Indeed, I am not always confident in those websites as prices actually paid are often dependent of the location of the distributor if travel or delivery costs have to be added. Furthermore, I have already experienced failures in registering distributor promotions (in the physical store) on comparison sites which do not always thrive to catch the best deal on the market.
Bibliography:
Show less– Fitzgerald, B. F. (2010). Access to public sector information: law, technology and policy. Sydney University Press.
– Mayo, E., & Steinberg, T. (2007). The power of information. Cabinet Office.
– Pindyck, R. S., & Rubinfeld, D. L. (2013). Microeconomics (8th edn).
Read more
For the average customer “price comparison website” is a tool that helps them to find the products they want without losing too much time or energy in endless research. They allow those customers to compare the products they want from different companies and choose the one adapted to their need ( regarding the price usually but also the brand, the shipping …)
The question now is: Does the “price comparison site” really positive for those customers?
If the customers are only regarding about getting the product with the fastest and easiest (most of the time) way the answer is like written above “yes”, but regarding the price the paper written by David Ronayne is arguing that there is a double-edged sword effect by using this method of purchasing.
Indeed the fact of clicking on the link will appear as a cost for the society and the more you will click on those links, the more the company will have to pay.
It is then normal to say that the customers will support these expenses in the end with an increasing of the price.
A normal answer to say now is that in a long term perspective the system of price comparison website may not be a good solution ( in a price perspective).
However in my point of view and according to other researchers: this long term scenario of increasing the prices is not going to happen.
The reason is that businesses can get a lot of information thanks to the price comparison websites and in the end use it in order to improve or increase their profitability.
We can explain that with several points:
1) they can help the firm to be “up to date” in price thanks to the constant comparison system.
2) They can help the help to compare its service to the others ( such as the shipping policy, refund policy, payment security …)
3) The ratings of the consumers is a great source of information : The feedback ( even if it was for a competitors) can be a great for the company and can can help it to improve itself or to find potential weaknesses.
4) Can help the company to know what are the trends in their products : the more the customer will click on a specific products the more popular is the product. The company can then concentrate its strategy on this specific product.
In conclusion, I would say that if the companies can see the possibilities that those sites can bring them in terms of information , the supplementary cost they will have for a click will less be seen as a charge but more as an investment not only in marketing but also data collecting. The customer will probably not be so affected as said by mister Ronayne.
We can now answer to the question and say that price comparison websites are positive for the consumers if firms behave in a correct way and use those sites in order to create a competitive advantage .
source:
http://www.marketingdonut.co.uk/marketing/market-research/market-analysis/what-can-businesses-learn-from-price-comparison-sites-
http://www.digifloor.com/competitive-pricing-analysis-can-boost-revenue-27
http://en.wikipedia.org/wiki/Comparison_shopping_website
Show lessRead more
With the rise of the amount of transferred data each year, more and more people use the internet in their common life. In the case of this article, they make their shopping online and make some research before buying. Due to this increase of research, some comparison shopping sites give a facility to them to compare some ‘homogeneous’ articles. They compare the prices and offer information. In my own experience, Booking.com allows me to earn a lot of time. And when I have no experience in travelling, this site was a good help in making my choice. I have booked thanks to Booking.com two nights in a hotel in the centrum which is the best in the centrum and the cheapest. If my research was about articles like smartphones, computers and so on, I will better go on http://www.Mediamarkt.com. I would not go on comparison shopping websites because the websites of the shops are diversified enough for this kind of research. But this is my point of view.
In the point of view of the others consumers, this concept increases their wellbeing. They earn time and then reduce their search costs. But it appears that the competition price between the sellers have increased due to the comparison shopping websites and that the prices have decreased. (2) But the consumers don’t make their own choice in some case. Because of the sponsoring, they see first articles which would not have been firstly presented if we had compared simply the price. The sellers which sometimes make sponsoring make also different prices for the same product. Price dispersion appears also in the comparison shopping sites. Their goal is to earn market share because people are mostly more sensitive to price than to the brand name. In America, 52% of them agree that the price of a product is more important than the brand name. (3). Then the effects of the price decrease on the wellbeing are more important due to this fact.
Show lessReferences:
1) http://www.booking.com/index.fr.html?sid=8082b27856358d8dd8496a51ae843f11;dcid=1
2) The impact of Shopbot use on prices and price dispersion by Zhulei Tang, Alan Montgomery and Michael D. Smith (https://archive.nyu.edu/bitstream/2451/14956/2/USEDBOOK14.pdf)
3) Hajaj, C., Hazon, N. & Sarne, D. (2014). Ordering Effects and Belief Adjustment in the Use of Comparison Shopping Agents, Association for the Advancement of Artificial Intelligence.
Read more
First of all price comparison websites (PCW’s) help consumers to achieve in minutes what could take hours of boring job. A lot of people don’t have enough time to compare all prices of each product and that’s why this kind of website could ease the consumer’s life. Moreover, it could also spare money by finding the cheapest and more convenience product on a market where all products are similars.
Nevertheless, the existence PCW’s have some negative impacts for consumers. David Ronayne, an economic analyst argues that these websites can only push up price of products and the increase of PCW’s inflames this problem. Most of people think that these sites are only create for the benefit of consumers (by increasing competition between providers), but it’s not true. Indeed, PCW’s also want to make benefits and sometimes, PCW’s encourage people to more expensive deals because they receive commission on the transaction. Mr Yeo has said « Some comparison sites have used misleading language to dupe consumers into opting for default options that only display commission earning deals.»
Recently, we have observed the case of Google which was accused to abuse of « its dominant position in web searching to favour its own websites ». Even with famous website (like Google), consumers have to keep their « critical mind ». That’s why they have to be careful about some comparison sites.
Personnaly, I can’t give my trust to PCW’s and I’ll never use it. When I have to buy a gadget on Internet, I inquire on all websites to know the right price of my future product. Firstly, I’m going in a real shop to inform myself over the product. Secondly, I observe different offers on the e-market (Media-markt.be, Amazon.com,…). And finaly, I’m looking for second-hand deals to see if it’s not more attractive. (2ememain.be, ebay.Be,…). After these steps (I dit it for my last online purchase, an Iphone), I have my own opinion and I can choose among different options for my purchase.
SOURCES :
https://www.fca.org.uk/static/documents/research/price-comparison-website-consumer-research.pdf
http://www.dailymail.co.uk/wires/reuters/article-3040513/EU-case-against-Google-centres-value-price-comparison-sites.html
http://www.telegraph.co.uk/news/earth/energy/11441223/Price-comparison-sites-should-compensate-customers-duped-into-more-expensive-deals.html
http://www2.warwick.ac.uk/newsandevents/news/we_could_all/
Show lessRead more
From a consumer perspective price-comparison website can be an useful tool. The use of such a site is a convenient approach to layout many sellers’ prices for a particular product that the customer is interested in. This enables the customer to find the cheapest deal for the good searched. Furthermore, such price aggregators also allow the consumer to save time. Usually, with a well-working site, the consumer only needs to enter his search criteria once instead of having to relatedly to do so on each seller’s website. Plus, some sites offer detailed filters which is a simple way for any interested party to break down the list of results and only keep those that truly fulfil all the requirements of the consumer.
On the other hand, the increased transparency of prices tend to lead to the consumer only focusing on the price. This might outweigh the different policy features and good service offered ( when comparing energy suppliers or insurers for instance). The result is that consumer do not compare identical goods or services and the comparison is therefore not accurate anymore . Choosing the best deal in terms of price may come with loosing required features,…
In contradiction to the “saving time” argument one other disadvantage of price-comparison website is that they are usually none that cover the entire market. This happens because some sellers refuse to cooperate or pay certain price-comparison websites based on ethics or fees. The consumer then needs to go through a couple of them to be able to compare as much products as possible before making its decision, which is still time consuming. Then another reason why consumer might need to visit multiple sites is that prices may be different on one site compared to another. The most apparent reason for that is that revenue models vary between the comparisons sites, and this usually has an effect on price.
As for my personal opinion, I tend to go through specialized price-comparison website as they give detailed information and reviews about the product which is more useful. But I’m still perplex as to the price transparency. Indeed, I was the victim of “ dynamic pricing” while booking my summer vacations. The prices just kept going up each time I visited or refreshed the price-comparison website and never decreased. I finally had to change computer to benefit from the initial lower prices. This whole experience makes me think twice before trusting prices on such sites and I usually end up going on the different sellers’ websites and do the comparison myself.
References:
Show lessConsumer Focus (2013). Comparing comparison sites : Price comparison website mystery shopping report for Consumer Focus by eDigitalResearch.
Consumer Futures (2013). Price comparison websites: consumer perceptions and experiences : A report by RS Consulting for Consumer Futures.
Norling, M. and Eliasson, E. (2009) Price comparison sites in the United Kingdom and Sweden. http://www.nft.nu/en/price-comparison-sites-united-kingdom-and-sweden (retrieved on 20/04/2015)
It’s interesting that you make a link between price comparison websites (the topic of this week) and dynamic pricing (a topic that we will consider next week).
Read more
Price comparison websites have become tools that more and more consumers use to make their buying decisions. Indeed, many consumers identify several benefits from using PCWs and have no doubt that these websites make them better off.
In my own opinion, as a consumer, I have a positive opinion on the PCWs. My first idea is that the PCWs allow consumers to quickly access all the information they need. Information that would have takes hours to collect without the websites. Moreover, I think that consumers are saving money by using a PCW as this tool allow them to find the cheapest product. I think that an important majority of consumers have, like me, this positive opinion on the price comparison websites.
However, the economists think differently. In their opinion the effect of the existence of PCWs on consumer is unclear. On the one hand, PWCs, by increasing competition on the market, make the prices decrease. But on the other hands, as firms have to pay fees to be listed on the PCWs, their costs increase which lead to an increase in the prices they fix.
Trough my search on the Internet I tried to understand the reasoning behind this idea. Let me explain you what I have read and understand.
Several articles identify two key variables that determine the impact of the PCWs on the consumers. These two variables are: the number of PCWs that the consumers consult and the number of PCWs.
Regarding the first variable, let’s imagine two extreme situations. In the first one, each consumer checks only one PCW. This situation would give to this site an important share of the market, allowing him to charge high fees to the firms willing to be listed on it. High fees that, as we said above, will be reflected on the prices charged to the consumers. So in such a situation, consumers suffer from the existence of PWCs and would be better off without them.
In the second extreme situation, all consumers check all the existing PCWs. In this case, the market is extremely competitive and firms have to charge low prices. Actually this specific situation is the only one in which the PWCs make consumers better off.
However it seems obvious that such a situation cannot appear in reality. Indeed, in the reality, we stand in an intermediate situation; consumers check some but not all PCWs. That’s why economists tend to be uncertain about the effect of price comparison websites.
Concerning the number of existing PCWs, I think it is important to mention that an increase in this number can have a negative impact for consumers. Indeed, if this number increase while the number of the PWCs that the consumers are checking remains constant, PCWs that are checked gain market share, power and are able to charge higher fees, making the consumers worse off.
As a final word, consumers should maybe review their opinion on the price comparison websites and be more critic, me included.
http://theconversation.com/how-price-comparison-websites-may-do-customers-a-disservice-38241
Show lesshttp://phys.org/news/2015-02-worse-price-comparison-websites.html
https://www.fca.org.uk/static/documents/research/price-comparison-website-consumer-research.pdf
http://wrap.warwick.ac.uk/66207/1/WRAP_twerp_1056_ronayne.pdf
Read more
Nowadays, buying on the internet has became common. In fact, nearly 50% of the french population has buyed at least one product on the internet in 2013 [1]. In this situation, shopbots are an important agent. Indeed, shopobots helps consumer to find all the information about one product, allowing him to compare products. Obviously one of the most important information consumer is looking for is the price.
Concretely, shopbots put retailers and consumers in relation. Knowing that if consumer had to pay for this access to information, nobody would use shopbots (Diamond P, 1971). Shopbot only fees retailers and set the access free for the consumers. They are several pricing methods : fixed fee, fee depending on the clicks and finally fee depending on whether consumer has bought the product or not.
Knowing that, it appears quite clearly that consumers will buy the cheapest product and thus that retailers will set the price equal to their unit cost of production. But Hal Varian showed that firms randomly choose their price for a dedicated period. In this case, we say that price dispersion is temporal.
Effect of shopbots on retailers are obvious, it increases competition between firms and thus force them to set lower prices. But the effect on the consumer are less clear.
Following Michael D. Smith [2] and Erik Brynjolfsson [3] prices influence the consumer but also the brand name. This means that consumers will be loyal to brand they know and they like even if the price is sometimes higher than other brands. More than that, Brynjolfsson found out that regarding the fact that consumers made the effort to compare information on one product, they are more price sensitive, firms may thus have to charge lower price on consumers buying through shopbot than the one directly going to their website. This effect is non negligeable.
I will conclude on my personal advice. I have nearly no experience on internet shopping and thus I did not know that concept of shopbot. After having read this article and made some research on the internet, it seems that it migth be benefic for the consumers. But, I am convinced that if consumers know how the system works, the random system of pricing would not be viable anymore. I would wait until the brand I trust set a lower price for the product I want.
[1] : http://www.e-marketing.fr/Thematique/Direct-Digital-1003/Breves/L-evolution-des-habitudes-d-achat-des-Fran-ais-entre-2012-et-2013-53119.htm
Show less[2] SMITH, M., Consumers decision-making at an internet shopbot : brand still matters, The journal of industrial economics 2001.
[3] BRYNJOLFSSON, E., The Great Equalizer? An Empirical Study of Consumer Choice at a Shopbot, 2004
Read more
Price comparison websites allow you to achieve in minute some complex researches that would take hours. From just consulting a single comparison website, you will get all the information you need without having to investigate on various websites, to collect data through the different company, etc. Therefore, it offers you the benefit of saving times and money. Consumers define it as an “objective facilitator, searching the market and curating results, presenting them in a simple way”.
Many users of price comparison websites feel comfortable and confident when using them. People tend to use one price comparison website as they consider that they are all the same. However, it is still safer to consult more than one to widen the research. Plus, those websites do not cover the entire market, so for the one who find it not enough, research should be extend to other way of comparison. Moreover, you can sometimes be surprised that the amount of money you pay to purchase your good it is not the same as seen on the research results. Indeed, some price comparison websites do not to take into account to hidden extras included in the sale.
To give an example of price comparison website, lets take the well known website “Tripadvisor”. This website allows you to compare the price of hotels proposed by different platforms. Thus, you can visualise where it is cheaper to make your reservation. You cannot book from the website, you are redirected to the website of your choice.
From my personal point of view, I find that price comparison can be a real loss of time. Indeed, sometimes you spend hours to compare the price of a good on different websites or shops in order the save a little. I find it interesting when concerning exceptional or expensive purchases such as computer, holidays,.. But for every day’s goods I gain a certain experience during my life and I know where it is cheaper or more expensive to buy. I acquired a certain “capacity to analyse and compare” goods naturally from visiting one shop to another over time.
References :
Show less– https://www.fca.org.uk/static/documents/research/price-comparison-website-consumer-research.pdf
– http://www.tripadvisor.fr/
Read more
Nowadays shobots have become a must for people looking for information and for the best opportunities.They are part of their decision-making process.
The quantity of shopbots is impressive and include a large variety of product category going from simple consumer goods ( prixmoincher.com) to banking and financial services ( Bankrate.com). They represent a remarkable paradox. On the one hand there goal is to enable the consumer to choose the cheapest product with the consequence of lowering the market price (Tang et al. 2007) . On the other hand, to obtain payment and stay a viable business, they charge fees to company. Those fees can take multiple form as described above. Those fees have the effect of reducing the margin for the seller which will generate an increase of the selling price for the consumers and a decrease of their well-being (Ronayne David 2015).
The question that emerges is twofold:
-For the buyer: it is important to determine whether it is more interesting to go through a price comparison that immediately contact a seller. Indeed, a lower number of intermediate can have a positive effect on the price.
-For the seller: it is important to know whether the benefits generated by the traffic coming from shopping robots cover the costs due to the use of this mean.
In addition to these two key issues, there are still other considerations over this problematic. The consumer is increasingly informed on market prices thanks to the internet. It is therefore essential for a firms to be present in this type of website, even only to show their presence on the market, regardless of the prices.
Another problem for the consumer is that sellers always find stratagems to make it difficult to compare. This is done by providing for the same product additional services, insurance, delivery delays, warranty, and other complementary facilities, making the value of the product and price comparison much less obvious.
In addition to that lot of retailers try to reduce effectiveness of shopbots by adopting bait-and switch strategies or by encouraging shopbots to sort tables based on retailer advertising rather than price. (Ellison and Ellison, 2001). Indeed appear in shopbots is often a marketing tools to attract the consumers on the website of the retailer where he try to sell them a different product.
Last consideration: many sellers (Air Company for example such as Ryan air) show very competitive price in this kind of engine (such as momondo.be), but it is only at the end of the transaction (at the payment phase) that the customer is aware of the actual cost and that the product is probably no longer the most competitive of the market.
I have for my part trying to reserve a fly. After comparing the price, the best option was the travel agency Rumbo but after looking further at the last phase of the reservation it turned out that I had to pay with a specific debit card to receive that price and that lot of conditions written in small applied including additional cost for the luggages or for the airport taxes.
I feel at that time swindle.
I personally think that price comparator therefore still have a bright future provided not having too negative influence on prices because of fees. But especially by enforcing the respect of a transparency charter by the sellers and giving the possibility for consumers to find easily the best market price for the same product.
Sources
Show less– Smith, M.D.,(2002). The Impact of Shopbots on Electronic Markets., Journal of the Academy of Marketing Science, 30(4), 442-450.
– Baye, Michael R, John Morgan, and Patrick Scholten (2004), “Price dispersion in the small and in the large: Evidence from an internet price comparison site.” The Journal of Industrial Economics, 52, 463–496.
– http://revel.unice.fr/eriep/?id=3212#tocto1n4
Read more
If we want to think about consumer well being in comparison shopping sites, we have to know the utility that consumers gives to the reduction of searching costs given by the platform in comparison with the utility lost by the sellers fee. If the consumer gains more utility with less searching costs than he loses with the slightly more expensive price caused by the fee, then the allocation is efficient. If not, then the consumer loses some well being. The problem with this approach is that every customer might gives different utilities to the reducing searching cost, even for homogeneous goods. In a consumer market research, Atticus, a market research consultancy, found that consumers behavior towards the comparison shopping site can be segmented according to their attitude to risk, which is going to have an impact on their utility. The consumer who perceive a risk of not being insured sufficiently will be more involved in the research process [1]. Therefore, those ones will give less utility to the reduction of searching costs, for they will continue to search afterwards. For those customers, the system have more chances to be inefficient.
If we do not consider this approach, we can look for efficiency via different parameters. When products are homogenous, Gonzales & Wildenbeest (2011) states that product differentiation and price discrimination play a distinctive role in efficiency. If the comparison site offers horizontally differentiated goods, it aggregates information in one place, therefore becoming more efficient than a decentralized marketplace. In equilibrium, even if there’s no possibility for price discrimination, the site attracts all the players and creates an efficient outcome [2].
Moreover, efficiency can be obtained by reducing the price via other parameters. The price setting might be influenced by the reputation of the seller. Liu, Feng & Wei (2012) showed that when the number of “informed buyers” exceeds a certain level (which is, by definition, often the case for comparison shopping sites), sellers with a high reputation tend to set a lower price than sellers with a lower reputation [3]. Finally, the type of products can change the way the comparison shopping website influence the price. Tang, Smith & Montgomery (2007) showed for the book industry that a 1% increase in shopbots usage reduces on average the price of 0,41$, stating that it is only for the book industry [4].
[1] Atticus (2014). Price comparison website: Consumer market research. Prepared for the Financial Conduct Authority. PCW Research Report April 2014, p.8.
Show less[2] Moraga-González, J. L., & Wildenbeest, M. R. (2011). Comparison sites.
[3] Liu, Y., Feng, J., & Wei, K. K. (2012). Negative price premium effect in online market—The impact of competition and buyer informativeness on the pricing strategies of sellers with different reputation levels. Decision Support Systems, 54(1), 681-690.
[4] Tang, Z., Smith, M., & Montgomery, A. (2007). The impact of shopbot use on prices and price dispersion: evidence from online book retailing, Heinz research. vol 47.
Read more
Price comparison websites aim to help decision-making of consumers when purchasing a product or a service. We face a multisided platform with these different actors : shopbots or comparison shopping websites that play the role of intermediaries, sellers or firms that pay to advertise their prices and users who access the list of prices. The main examples of comparison websites that come to my mind are flights comparator websites (such as Google Flights, Opodo, Bourse-des-vols, Kayak and Skyscanner) or hotels comparator websites (such as Trivago and Tripadvisor).
Such websites could give consumers biased information due to the following reasons :
– They do not cover all the market, but only some providers. Nevertheless, they give the feeling that there is no need to go on other websites to find the best deal. Consumers need to make a more detailed analysis by themselves. Moreover, it appeared that prices can vary for a same product or service, depending on the price comparison website.
– They do not take into account all the information of the different offers and all the costs charged to consumers. For example, if we take a flight comparator website, they may not take into account the conditions and prices of cancellation insurance, of reimbursement, of date changes, of additional luggage, etc. The comparison based on prices takes into account only one element – the price – among other criteria. In other words, this is not a ranking based on value for money but it is a ranking based only on cheapest deals. Consumers need to be vigilant and should not take the result that appears at the top of the list as the cheapest one on the market. In my opinion such websites are useful for a basic search in order to get a first insight into the different offers and the different providers of the market but it will never replace the comparison that consumers make by themselves. Consumers should not trust them blindly but they should verify and cross-check results on other websites in order to get all the information.
– They offer a better positioning if companies pay an extra fee. We have seen during a conference in E-marketing that the model pay-per-click (or cost-per-click) allows companies to choose three things : their positioning, the key words for which they are found and their targeting scope. Therefore providers can pay price comparison websites in order to influence the comparison results.
For all these reasons, such websites can mislead consumers who are not treated fairly and transparently.
In order to counteract those comparison websites, some companies have created loyalty systems (loyalty cards, etc). For example if we book regularly with the same airline company or with the same hotel chain (for example Accor), we can earn points that allow us to get deals, cheaper flights or rooms, a more personalized service, etc. Consumers know that by being member or by being loyal to a brand their problems will be resolved more positively, more quickly and more easily than for a non-member consumer. This is explained by the fact that companies do not want to lose their “premium” consumers.
For a high proportion of consumers, comparison websites form part of the usual decision-making process and they see them as convenient and useful tools. However, I agree with the theory of Salop and Stiglitz that says that there are different kinds of consumers :
1) Those who shop around and analyze the whole market in order to get the best deal (which is not necessarily the best one on the comparison website). They will push the analysis as far as they can.
2) Those who trust comparison websites and take the best deal offered, without actively seeking out on other websites. They feel that the information they access is reliable.
3) Those who want to buy no matter the price. They go directly on the website of a provider they know, even if they could pay a lower price on a competitor’s website.
To conclude, it is hard to say whether those websites are fair or misleading tools for consumers. On one hand, they will allow consumers to get better prices as they force companies to set lower prices because of the competition. But on the other hand, as comparison websites charge companies for this service, these charges will be supported by consumers at the end. The effect on the well-being will depend on the kind of consumer we are facing. Consumers who are not used to compare prices will save time and money and they will make better and more informed choices. They are the kind of consumers who do not mind how the websites make their money, as long as they can get a good deal. On the contrary, consumers who are used to compare prices by themselves will have to cover a part of the costs so prices could be higher than if these websites did not exist. In short, there will be losers and winners.
Sources :
Show less– http://www.consumerfutures.org.uk/files/2013/07/Price-Comparison-Websites-Consumer-perceptions-and-experiences.pdf
– http://www.consumerfutures.org.uk/blog/marriage-of-convenience-consumers-and-price-comparison-websites
– http://www.dailymail.co.uk/news/article-2119610/Comparison-websites-best-getting-lowest-price-consumers.html
Read more
Price comparison website allow consumers to have lots of information on goods and services provided by firms. It makes the search easier for deals and to compare prices.
Those websites have different methods to charge the companies that are listed on their website. Obviously, they increase the competition between firms. Indeed, since it is easier to compare prices for consumers, firms tend to lower their prices in order to attract them.
Firms set different prices for the same goods, some sell at the competitive price, other at a higher price. Baye and Morgan show that price dispersion is also true is an environment were all consumers are informed. In the article of Baye and Morgan, they explain that it is optimal for gatekeepers to let the consumers get the information for free because of a problem of free riders.
But the question is: What are the effects of price comparison website on the well-being of consumers?
Indeed, those website also have an impact on the pricing decisions of the firms.
In the article of David Ronayne, there is a comparison of the consumers’ well-being in a world without and with price comparison websites. When there are no price comparison websites, firms only care about the price of firms that they are compared to, and not all the firms.
With price comparison sites, firms make a decision for their prices once they know the fees to pay in order to be listed on the comparison sites. As said above, price dispersion is the rule,so consumers are better off checking the price comparison websites.
When the fee is high, consumers pay a higher price for goods. On the contrary the prices are lower when the number of firms that compete with each other increase. However, Ronayne D. shows that there don’t exist a number of firms sufficiently high in order to beat the first effect.
The price comparison websites, actually, decrease the well-being of consumers.
Sources:
http://wrap.warwick.ac.uk/66207/1/WRAP_twerp_1056_ronayne.pdf
http://faculty.haas.berkeley.edu/rjmorgan/Information%20Search%20and%20Price%20Dispersion.pdf
Show lessCategories