Comments for How do comparison shopping sites make a living?

Gauthier Roels
Shopbots increasingly play an important role on the Internet nowadays. Their role cannot be ignored anymore as shopbots became crucial for product awareness to consumers. Shopbot’s success partly relies on the fact that they provide value to potential buyers by reducing their searching costs for the best purchase. The most common business model that usually prevails in the industry relies…
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Shopbots increasingly play an important role on the Internet nowadays. Their role cannot be ignored anymore as shopbots became crucial for product awareness to consumers. Shopbot’s success partly relies on the fact that they provide value to potential buyers by reducing their searching costs for the best purchase.

The most common business model that usually prevails in the industry relies on a segmentation of the platform in two sides. The sellers’ side is charged a fee to be allowed to display their products. This is called the monetary side (Eisenmann, 2006). The other side, the customer side, freely has access to the service. This is called the subsidy side.
The shopbot phenomenon has a huge impact on the price pressure on the markets as stated by the Bertrand competition model. Indeed, the transparency of prices (uniform information among customers) and lack of differentiation leads the customers to be directed to the least expensive products displayed.

Shopbots gain an increasing importance because of network effects. Same-side network effects apply especially in this case. Indeed, the more important the amount of sellers displayed on the website, the more encouraged the others are to join to avoid being ignored by the customer base. Cross-side effects are also relevant as a higher number of sellers on the website attracts a more important base of users of the shopbot and vice versa (Eisenmann, 2006).

Such online platform industry often leads to a single monopolistic platform if (Eisenmann, 2006):
– Visiting different platforms is costly for users
– Network effects are strong
– The search needs are not differentiated among customers

As jobshops display very undifferentiated products, these comparison websites provide important value by aggregating all the data about the products on the markets. This is why shopbots are a more attractive option than the decentralized way. The comparison website market is thus likely to continue to gain critical importance in the future (Moraga & al., 2011).

Sources:
Eisenmann, T. & al. (2006). Strategies for Two-Sided Markets. Harvard Business Review, 84(10),, pp. 92-101
Moraga, J. & Wildenbeest, M. (2011). Comparison sites, IESE, 33p.

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Margaux Hermant
It is well known that the Internet revolutionized lots of things. Among those things, we can say that it revolutionized the way of doing shopping. While in the past it was necessary to go to the “The Mall” to buy items in person, it is now possible to shop online. Technologies such as shopbots allows consummers to easely locate…
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It is well known that the Internet revolutionized lots of things. Among those things, we can say that it revolutionized the way of doing shopping. While in the past it was necessary to go to the “The Mall” to buy items in person, it is now possible to shop online. Technologies such as shopbots allows consummers to easely locate a bunch of products in the same place and clearly reduce the cost of searching for the best deal.

At first glance we may think that all those shopbots are the same and that, at the end, they do not have many ways to differenciate themselves from the competition. Nevertheless, we can easily find on the web several articles that provide a list with the “best” shopping sites. (1). This raises the question of the possibilities that exist for those websites to differenciate themselves from the competitiors. What are the sources of differenciations for the shopbots?

It is important to underline that with the growth of the shobots, those webistes are now competing among themselves either that only with the traditional shops. Thus, the shopping sites can no longer limit themselves to practical and attractive offers solely from the point of view of the price. It is now necessary for them to find other sources of differenciation. Bèzes et Belvaux showed that only the organisation of the offer and the way the firms establishe their worth seem to allow the shopping robots to differeniate themselves among them. (2)

Here, I focus my reasoning on the problem of differenciation for the shopbots. Yet, there is another point that in my opinion warrants attention : shopping sites allow consumers to compare offers and can therby facilitate their access to information. Well, it is one thing to say that consumers have a better acces to the information but we could also think the other way around : in which extent do those websites collect informations about the consumers in order to better target them.

(1) http://www.huffingtonpost.ca/2012/10/26/top-online-shopping-sites_n_2025607.html
(2) Bèzes, C., Belvaux, B., (2012), Quels éléments de différenciation pour les sites web marchands ? Une approche par l’image transmise, Management & Avenir, Vol. 8, N°58
(3) http://aisel.aisnet.org/cgi/viewcontent.cgi?article=1210&context=ecis2008

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Julien De Mesmaeker
Shopbots act like intermediaries between sellers and consumers. Therefore, it would be interesting to answer this question by looking at the two sides of the platform: buyers and sellers. For the buyers' side, it is obvious that shopbots have had a huge impact on the consumption habits. Indeed, consumers are highly price-sensitive and shopbots will drastically reduce the time spent looking…
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Shopbots act like intermediaries between sellers and consumers. Therefore, it would be interesting to answer this question by looking at the two sides of the platform: buyers and sellers.

For the buyers’ side, it is obvious that shopbots have had a huge impact on the consumption habits. Indeed, consumers are highly price-sensitive and shopbots will drastically reduce the time spent looking for information and then reduce the search costs (2). Furthermore, a positive cross-side effect appears for buyers: more sellers on the website will satisfy consumers as they will have the choice between more products. However, even if shopbots may seem to remove all price differences, it is not the case as there is still an effect of brand loyalty as shown in the study of Pederson & Nysveen. Others aspects, as delivery costs, brand reputation, … may have to be taken into account.

For the consumer’s side, shopbots can have different effects: a positive cross-side effect as more consumers visit such websites, more the sellers will enjoy visibility and be happier; and a negative within-side effect as more sellers are on the website, more competition will exist between them. It has been proved that an increase [..] in shopbot use is correlated with a [..] decrease in price levels and that price dispersion decreases with shopbot use nonlinearly (Tang, Montgomery & Smith, 2007). As they explain for price dispersion: “when more people search, the increased awareness of prices intensifies competition, which leads to the falling price dispersion.” A finding that seems to be applied to most of the data. However, they state that this effect might not hold in the long run because the profitability of the retailers is damaged, and may experiment other pricing strategies (Tang, Montgomery & Smith, 2007). It is once again important to notice that occasionally price dispersion may increase as well with the number of consumers because of the smaller retailers that might tend to not engage in price dispersion, using a variety of strategies. (Tang, Montgomery & Smith, 2007).
To wrap things up, we see that shopbots tend sellers to decrease their prices, but it is not the only way they have to differentiate themselves. Thereby, we observe that price dispersion still exists as many consumers not only pay attention to the price, but to other facilities. Furthermore, it is important to notice that not all consumers use shopbots and it will depend on the product we are talking about. Then, it increases the competitiveness of products market, but not only on prices.

In term of market efficiency, it is a difficult question to answer, as many factors have to be taken into account. Shopbots help to achieve a full transparency of information, therefore it is positive for the overall market. However, shopbot allow sellers to compare themselves with others and will then incite them to maximize their price in comparison to other’s price. Furthermore, even if prices online are lower than the one offline, price dispersion still exists and then it maybe not entirely reflects the available, relevant information (3). I would personally say that shopbots have a positive impact on the market efficiency but it is not easy to do the balance between positive and negative effects.

(1) Pederson & Nysveen http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.18.269&rep=rep1&type=pdf
(2) Tang, Montgomery & Smith, 2007 https://archive.nyu.edu/bitstream/2451/14956/2/USEDBOOK14.pdf
(3) http://www.investopedia.com/terms/m/marketefficiency.asp

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Laurentine Fosséprez
Comparison shopping sites are knowing growing popularity nowadays but are they really increasing the competitiveness of product markets? Following the Bertrand model with the hypothesis of total transparency, the competition between sellers is high. We could think that shopbots will lead to more transparency and to an increasing competition. However, although price dispersion seems to become lower it is doing slowly. (1) There…
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Comparison shopping sites are knowing growing popularity nowadays but are they really increasing the competitiveness of product markets?

Following the Bertrand model with the hypothesis of total transparency, the competition between sellers is high. We could think that shopbots will lead to more transparency and to an increasing competition.
However, although price dispersion seems to become lower it is doing slowly. (1)
There are others factors we need to take in account to understand why the allocation with shopbots is not efficient.

Firstly, if the competition is too high with the introduction of comparison websites, the sellers’ interest to pay to be on the platform will decrease. Shopbots may find advantageous to raise their participation charges in order to obtain more rental from the firms. (2) It will indeed exclude some firms who cannot afford high fees. This leads to more price dispersion and less value for the consumers.
However, we must not forget that there is also competition between the shopbots themselves.
Is excluding cheap low quality products a really good deal for shopbots knowing that their principal users are price sensitive (2) and will easily turn to a competitor with better offers?

Secondly, we must keep in mind that all consumers are not fully informed despite the absence of charges to entry on the platforms. We could consider that loyal consumers are like uninformed in the spatial price dispersion. Brand and consumer loyalty can indeed lead to select higher-price vendors. (3)

In my opinion, knowing that in practice perfect competition is not reachable, a win-win situation would be to add recommendation datas to shopbots. In this way, a larger number of sellers could coexist on the platforms keeping price dispersion. Users would indeed looking at others aspects than prices like quality. Profit for firms will remain keeping a value for customers.

(1) http://www.cluteinstitute.com/ojs/index.php/JBER/article/view/8068/8122
(2) Moraga-González, J.L. & Wildenbeest, M.R., (2011)., Comparison Sites
(3) Simon, D. & Parsons, P., (2002)., Game Theory and Decision Theory in Agent-Based Systems

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Charles-Hubert Clérin
If many originally supposed that shopbots would definitely favour customers [1] thanks to the increasing information (Baye and Morgan,etc...), it seems that this thought won’t become the truth: Even if it is true that shopbots « makes pressure on retailer’s margin », it is also true that retailers have found many way to temper such “disagreement” for them [1]. The…
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If many originally supposed that shopbots would definitely favour customers [1] thanks to the increasing information (Baye and Morgan,etc…), it seems that this thought won’t become the truth:

Even if it is true that shopbots « makes pressure on retailer’s margin », it is also true that retailers have found many way to temper such “disagreement” for them [1]. The “randomized prices” of Varian’s model are, indeed, not the only solution firms may find.

Moreover, if some can have doubts about the effective decrease in competitiveness induced by firms’ actions like randomized prices, they can’t neglect what Montgomery et al have demonstrated in 2003: a large majority of the consumers using the internet don’t make use of shopbots. This result reduces the significancy of the shopbots’ positive impact on the total competitiveness of the market. However, a better design of shopbots may actually leads to a higher utility for consumers.[2]

Speaking about shopbots themselves, Smith (2001) shows that “they damage their business model if they drive all consumers to the lowest priced retailer or drive price dispersion to zero”[1]. Smith (2003) also speaks about another important aspect of consumers’ choice: the quality of the products. He says that customers “remain asymetrically informed about quality »and they then try to find proxies like brand, higher price, etc… in order to make a choice [1]. This, again, reduces the increase in competition that may occurs after the entrance of shopbots in the market.

One last word about consumers: Chen and Sudhir (2001) raise the fact that there exist differences between loyal and price-sensitives customers. A decrease in customer’s searching cost could therefore leads to a decrease in the competitiveness of the market [3].

In conclusion, the effective impact of shopbots on a market’s competitiveness is quite mitigated since many factors, including the customers themselves, tend to reduce the utility of consumers and the competition.

[1] http://repository.cmu.edu/cgi/viewcontent.cgi?article=1052&context=heinzworks
[2] http://www.cs.cmu.edu/~callan/Projects/P2P/Pubs/shopbot-may_2002b.pdf
[3]K. Sudhir & Yuxin Chen, 2001. “When Shopbots Meet Emails: Implications for Price Competition on the Internet,” Yale School of Management Working Papers ysm247, Yale School of Management.
[other]M. R. Baye. (2002). The Economics of the Internet and E-commerce. Advances in applied microeconomics, 11, 13-15.

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Loick Marien
First of all, we could say that shopbots have increased competitiveness between retailers because they allow all the consumers to be fully informed since they can have access to these sites freely. This enables them to choose the cheapest product available. But this is true only if the price of the product is the only parameter taken into account. Indeed,…
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First of all, we could say that shopbots have increased competitiveness between retailers because they allow all the consumers to be fully informed since they can have access to these sites freely. This enables them to choose the cheapest product available. But this is true only if the price of the product is the only parameter taken into account. Indeed, according to Brynjolfsson and Smith (2000) (1), the brand and its reputation are also really important in the consumers’ mind, especially for customers that are more sensible about the non-contractible aspects of the product bundle, as delivery times for example. One of the problem of the comparison sites is the fact that they provide no information about service quality across retailers. Indeed, the spatial separation between consumers, retailers and products caused by the Internet increase the importance of service quality but decrease service quality cues available to customers (Smith, Bailey, and Brynjolfsson 2000) (2). Besides, in addition to the usual fees like the ‘cost per click’ or ‘cost per acquisition’ models, the comparison sites have implemented extra fees for additional services such as allowing the sellers to obtain priority positioning in the list (Moraga and Wildenbeest, 2011) (3). Those extra fees can result in misleading the consumer about the cheapest product available. This decreases the market efficiency. Then, it is not in the interest of the comparison sites to accept all firms’ participation, because they want to avoid the Bertrand paradox in the product market. Because if firms’ profit are decreasing, this means that they will be less able to pay those sites and thus the shopbots’ profits may be reduced too (4). Also, firms have found many ways to limit the competitiveness’ pressure. For example, a technique often used is to “offer a low quality product at a very low price to attract customers and then trying convincing them to pay extra fees to get the product they really wanted in the first place”. (5)
Cambini, Meccheri and Silvestri (6) have well summarized the effects of comparison sites on the competitiveness of product markets :“that online trading increases competition between firms, guarantees less expensive products, and so increases consumers’ surplus, but still higher than marginal price. The shopbots charge firms in a way that is above the socially optimal one, thereby inducing a price discrimination.”
“The market efficiency may depend on the firms’ ability to charge different prices whether they are on- or off-comparison sites. According to that, the behavior of the comparison sites will not be the same. When the products are homogenous and the retailers have to charge same prices on- and off-comparison sites, shopbots will charge fees so high that it will exclude some firms, which will lead to price discrimination and thus the market will not be efficient. But, if retailers can charge different prices on- and off-comparison sites, the shopbots will attract all the players to the platforms and the allocation is thereby efficient.” (7) Furthermore, it is also said that when there is a big vertical product differentiation, the comparison sites may be tempted to charge high fees to exclude low quality producers. In this case, the market efficiency is once again threatened. (8)
(1) Cambini, C., Meccheri, N., Silvestri, V. (2011). Competition, efficiency and market structure in online digital markets. An overview and policy implications. Online http://revel.unice.fr/eriep/?id=3212#tocto1n4 consulted on the 19/04/16.
(2) Clay, K., Krishnan, R., Smith, M. (2001). The Great Experiment: Pricing on the Internet. Online http://www.heinz.cmu.edu/~mds/papers/ebh/ebh.pdf consulted on the 19/04/16.
(3) Moraga, J., Wildenbeest, M. (2011). Comparison sites. Online http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1947292 consulted on the 19/04/16.
(4) (1)ibid
(5) (1)ibid
(6) (1)ibid
(7) (3)ibid
(8) (3)ibid

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Maïté Hörold
Comparison shopping sites, also called shopbots, serve as information intermediaries between sellers and buyers as they offer sellers the opportunity to transmit information on their products and buyers the possibility to acquire information on prices and other significant product characteristics. More precisely, shopbots display price and product information from numerous competing vendors in an accessible way and thus, significantly reduce…
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Comparison shopping sites, also called shopbots, serve as information intermediaries between sellers and buyers as they offer sellers the opportunity to transmit information on their products and buyers the possibility to acquire information on prices and other significant product characteristics. More precisely, shopbots display price and product information from numerous competing vendors in an accessible way and thus, significantly reduce buyer search cost. By enabling the interaction between two groups, namely buyers and sellers, shopbots are a typical example of a two-sided platform. (1)
At first glance, it seems that shopbots increase the competitiveness of product markets and market efficiency but we will look into this more deeply in the following part.

To start with, Baye and Morgan (2001) have found that shopbots’ profits are maximised in a dispersed price equilibrium in which all consumers participate in the market for information, but not all firms. Indeed, the higher the number of firms present on the platform, the higher the number of consumers deciding to join the platform. Also, firm will have more incentives to join the platform if they expect the number of consumers present on the platform to be large. The more firms will join the platform, the stronger the competition will be resulting in decreasing prices and thus, decreasing profits. In order to avoid a situation of Bertrand competition, shopbots will find partial firm participation optimal as it allows them to extract rents from the firm side. By charging the firms with a higher fee than the socially optimal one, price dispersion and thus, increased competition between firms, is promoted. (1) (2)

Several other studies seem to confirm that shopbots will lead to price competition among retailers. Although shopbots obviously put pressure on retailer margins in some respects, Smith (2002) highlights some important factors that were often neglected in other studies.
Firstly, the service quality is an important product attribute taken into account by customers due to the spatial and temporal separation between customers, retailers and products. Secondly, there is an inadequacy of information regarding other product characteristics than price, such as service quality or reliability, as the latter are more difficult to communicate. Thirdly, shopbots find themselves in a situation where they aim to respond to both customer and retailer’s interests which may result in an “arms race”. In addition to that, customer choices are not only driven by price differences. Although the price remains the strongest predictor of customer choices, other factors such as brand or loyalty influence customer choice. (3)

To conclude, I believe that shopbots have an impact on the competitiveness of products. This is especially true for products that are not able to differentiate themselves other than trough their price or for buyers that are price sensitive. Nevertheless, we have to keep in mind that not all consumers are shopbots users and a significant part of consumers remains uninformed. Thus, transparency on product information, especially on attributes such as service quality, is not achieved which leads to the conclusion that shopbots do not necessarily enhance market efficiency.

References:
(1) http://revel.unice.fr/eriep/?id=3212
(2) http://www.rchss.sinica.edu.tw/cibs/pdf/BayeMorgan.pdf
(3) http://repository.cmu.edu/cgi/viewcontent.cgi?article=1046&context=heinzworks

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Verschoore Quentin
Internet Shopbots are automated tools that gather information from online stores, allowing customers to easily and freely search for prices and product characteristics from different online retailers. As a first step,I primarily wanted to highlight some relevant points from the text itself: 1) The existing business models for shopbots to charge online retailers: • Flat fee giving the right to be listed on the platform • Cost…
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Internet Shopbots are automated tools that gather information from online stores, allowing customers to easily and freely search for prices and product characteristics from different online retailers.

As a first step,I primarily wanted to highlight some relevant points from the text itself:

1) The existing business models for shopbots to charge online retailers:
• Flat fee giving the right to be listed on the platform
• Cost per click, paid every time a consumer is referred to the seller’s website from the comparison site
2) According to the “Bertrand Model”, when firms:
• Are competing setting the product price
• Produce it at exactly the same constant unit cost
• Face a large number of fully informed consumers who can freely acces the information
⇒ Firms will set their price equal to the unit cost of production.

Before getting into my research and analyze on the impact of such shopping robots on the competitiveness and efficiency of markets, I firstly wanted to give my personal opinion on the topic. In this way, as far as I am concerned am I convinced that, knowing the existence of those shopbots, if online retailers are present on them, it’s because they can benefit from such platforms, otherwise they wouldn’t be there. Nevertheless this benefit could arise from different sources. I identified 3 of them.
• Financial interest
• Notoriety and reputation interest
• It allows them to face competitors already present on the platform. In fact they may not have the choice if they want to survive on the market.

Price dispersion among commodity goods is typically attributed to consumer search costs. Nevertheless, such comparison shopping sites induce full transparency and annihilate customers’ search costs. Therefore, according to the “Bertrand Model”, firms facing the same constant unit cost should set their price equal to the unit cost of production. However, as explained in the text, whatever the type of product, there is price dispersion between online retailers and firms still earn positive profits at equilibrium. So the question remains “Does Shopbots increase the competitiveness of product markets and enhance market efficiency?”.

In the first instance, market observers predicted that online retailers would be victims of those automated tools, at the benefit of consumers. Effectively, shopbots would radically reduce consumers’ search cost while decreasing retailers opportunities to differentiate their products, driving this way their margins towards zero. However, even if shopbots could put some pressure on retailers’ margins, it appears that they still retain numerous opportunities to differentiate their products, leverage brand names, set strategic prices, and reduce the effectiveness of consumer search at shopbots. Moreover, in my opinion, even if it is the retailers who theoretically have to pay the fee, they could make the consumers bear the weight of this cost through increasing the products’ price.

In fact, a recent review of the academic literature (suggesting that shopbots would dramatically increase pricing pressure on retailers margins) highlights the fact that 3 important factors were ignored:

a. “The spatial and temporal separation between customers, retailers and product imposed by electronic markets by electronic markets means that service quality is an important product attribute, even for otherwise homogeneous physical goods”.
b. “Second, and similarly, while it is easy for shopbots to communicate some product characteristics (such as price), others (such as service quality and reliability) are more difficult to communicate. In effect, the Internet does not uniformly search costs for all aspects of the product bundle. This represents an opportunity both for retailers and shopbots in terms of how to display information to customers”.
c. “Third, because of their business models, shopbots have divided loyalties between the interest of customers and retailers. These divided loyalties may explain why recent changes in shopbots interfaces seem to make it more difficult for customers to find the lowest price.

For these reasons, unlike what many economists predicted, the resulting impact of shopbots on electronic market looks more like an “arms race”, giving additional powerful weapons to customers as well as to retailers, in order to reach their respective goals, which is “to find the best deal” and “to make profit” for the online retailers.

The early predictions regarding the impact of shopbots have been correct in at least one way: some shopbot customers appear to be very price sensitive. However, the point where they made a mistake concerns the online retlaiers and their profit margins. Indeed, as observed by Brown and Goolsbee, most of online retailers set their price with respect to a Mixed-strategy equilibria, in the presence of both informed and uninformed customers. In this model, contrarily to uninformed customers, the fully informed ones buy from the “best deal” retailer. This way, firms could respond by drawing prices from a U-shaped distribution. Therefore, firms could either decide to target uninformed customers and charge higher prices to maximize revenue, or they could decide to maximize their sales through focusing on informed customers. Moreover, subsequent researches showed that shopbots didn’t necessarily lead to lower prices in internet markets and could either imply higher prices as the number of retailers present on the platform increases.

Another way for retailers to decrease the pressure on their profit margin consists to reduce the effectiveness of consumer trough shopbots what can be achieved, for instance, by “encouraging shopbots to sort tables based on retailer advertising rather than price”.

In conclusion, even if we might think that such automated tools would drive price drastically down by setting pressure on online retailers, researches have shown that they retain a multitude of strategic options to minimize it, such as price discrimination, strategic pricing, bait and switch, and search obfuscation.

Sources:

http://ebusiness.mit.edu/research/papers/194A_Brynjolfsson_Internet_Shopbot.pdf
http://www.heinz.cmu.edu/~mds/isem.pdf
http://www.shopbottools.com/

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Sacha Navez
Imagine that everyone is well informed; the actors would especially be put under competition and should adjust their prices according to their competitor. This would probably end up in a Bertrand situation. This should be put into perspective with at least two things. On the one hand, there are other elements that influence consumer choice and relax competition. This kind of…
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Imagine that everyone is well informed; the actors would especially be put under competition and should adjust their prices according to their competitor. This would probably end up in a Bertrand situation. This should be put into perspective with at least two things.

On the one hand, there are other elements that influence consumer choice and relax competition. This kind of features can influence the customer: if the consumer is accustomed to order with a website, that it has the safest payment method, with more efficient delivery , if he’s part of a loyalty program, if the warranty is more important,…
This kind of elements is often not reflected in the price comparison, and thus can push some consumers to stay loyal to a small number of website. This put into question the possibility of being fully and thoroughly informed.

That being said, in a situation where everyone uses these price comparison websites and that these ones would influence consumer choice, the websites should be present on these price-comparison platforms and thus pay their fees. Consequently, price comparison sites who would become indispensable could claim a more important fee to companies for being present on the platforms. This would force the players to increase their prices to a higher level in order to integrate this cost and stay at the same level of profitability.
My feelings about this are confirmed by an article in “The Economist”:« But there is a catch. Comparison sites, whether for insurance or something else, introduce a new layer of costs, including their own splashy advertising campaigns. In theory, competition in the market for comparison sites ought to keep those costs down. But in a recent paper, David Ronayne of Warwick University argues that consumers often lose out from comparison sites. They earn a commission for each shopper who uses them to buy insurance. That referral cost is incorporated into the price the consumer ends up paying. If the increased costs outweigh the saving the comparison enables, consumers end up worse off.” [1]

This article also explains that a fair solution for price-comparison websites would be to create one platform per product category run by the government, which is difficult to achieve. « One solution is to have only one site, but regulate it as a public utility. Alternatively, the government could run the site itself—much as the American government now runs comparison websites for health insurance under Obamacare.
But creating good search and comparison sites is hard, and governments are unlikely to do a good job of it.” [2]

[1][2] The Economist. (2015). Costly comparison. [online] Available at: http://www.economist.com/news/finance-and-economics/21657458-price-comparison-websites-should-help-lower-prices-left-unchecked-they-may [Accessed 18 Apr. 2016].

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Thomas Margraff
The online retail has deeply changed our way of shopping. While our parents only had access to limited information when making a purchasing choice, we’re know (over)loaded with possibilities. However, the internet is as huge as it gets and relevant information may sometimes be hard to find. It is therefore very complicated for customers to be fully informed, allowing companies…
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The online retail has deeply changed our way of shopping. While our parents only had access to limited information when making a purchasing choice, we’re know (over)loaded with possibilities. However, the internet is as huge as it gets and relevant information may sometimes be hard to find. It is therefore very complicated for customers to be fully informed, allowing companies to sell at higher prices to uninformed customers. But this tendency may tend to decrease as the use of shopbots rises. Those seem to do all the information collection work for us. But is it really the case and if so, how does it impact the competitiveness of the market ?

First, let’s have a word about the information and its impact on prices. The existence of online retail allows new actors to find a place on the market, as some companies only sell online, sparing the cost of opening a physical store. When making a purchase, consumers have therefore the choice between a broader range of sellers. The true difficulty lies in finding all those sellers on the internet. You may find some of them easily but those won’t necessarily be the cheaper. In fact, with the web being as it is, consumers can’t be sure they’ve explored all possibilities. Companies can therefore price their product higher, as the search cost of consumers is pretty high. The introduction of shopbots into this landscape has two effects: an increase in the number of alternatives considered & a decrease in search time and cost. Consumers are therefore informed way better than before. Shopbots also act as a showcase where all retailers are aligned next to another, leading to an easier comparison. Once they’re aligned, studies show that they aren’t different from one another to the customer, the only differentiation aspect being the price. Lower search cost and better information would lead the market towards a Bertrand-type competition as explained in this paper. Tang, Smith & Montgomery have actually observed this shift when discussing the impact of shopbots on online book retailing. They saw that “an increase of 1% in shopbot use is correlated with a $0.41 decrease in price levels”. This conclusion is based on data collected between 1999 & 2001, so we can assume that the impact could be even higher nowadays.

This leads us to discuss a second aspect: the degree of use of shopbots. The impact of shopbots on competitiveness depends highly on how many consumers actually go through them when buying. The paper of Passyn, Diriker & Settle in the Journal of Business & Economics Research is particularly interesting on this matter. It would like the explosion of shopbots usage is rather relative. Although the amount of consumers using them is in substantial growth, its usage remains limited to a certain segment of the market, namely the “innovative and/or price sensitive and/or trusting of the online retailers”. This explains why the decrease in prices and price dispersion is relatively small as of now. However, they expect that shopbots will eventually reach a broader segment of population and that the uninformed customers (being the non-users) will remain so for a very long time. Therefore, the competitiveness should continue its growth at an even higher rate than now.

This last sentence leads us to our conclusion. Online retailers should already prepare themselves for this increase in price competition, leading to a decrease in their margin. The first solution would be to review their production process in order to maintain the margin and support the eventual price decrease but this isn’t an easy task as most retailers already have optimized their production. The second solution is, to me, the most interesting. As we’ve said earlier, when facing a range of alternatives on shopbots, consumers don’t differentiate them with anything else than the price. Retailers should therefore try to gain the attention of consumers with something else than their price. This means creating strategies to “distinguish themselves from others and to create and intensify trust and loyalty”.

References :
http://www.cluteinstitute.com/ojs/index.php/JBER/article/viewFile/8068/8122
http://repository.cmu.edu/cgi/viewcontent.cgi?article=1046&context=heinzworks

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Mélisande Richald
Nowadays, with the internet making available excessively large amounts of information, consumers are facing increased alternatives when purchasing a good. Therefore, they are asking for tools comparing and sorting out that information to assist their choice. This is what comparaison site are made for. Those bargain finder, better known as shopbots, significantly reduce search time as it grants easy access…
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Nowadays, with the internet making available excessively large amounts of information, consumers are facing increased alternatives when purchasing a good. Therefore, they are asking for tools comparing and sorting out that information to assist their choice. This is what comparaison site are made for. Those bargain finder, better known as shopbots, significantly reduce search time as it grants easy access to a range of information in a single click. They play the role of intermediaries between the buyer and seller and consist thus in a two-sided platform.

As stated by Morage and Wildenbeest (2011) (1), shopbots have three means to raise money. First, they can charge retailers to appear on their websites. To do so, they set flat subscription, click-through or commission fees. Second, they do not charge retailers to be listed but make money thanks to sponsored ads or links. Third, they charge consumer to consult the platform.

Bearing in mind that the first way to make money is the most usual and that, as a result, consumers have the ability to compare information freely, an increased pressure is put on margins and enhances competition among comparable products (2). Consequently, retailers will set the lower price for their products. However, considering there are informed and uninformed customers, Brown and Goolsbee make the assumption that shopbots increase price dispersion(2). Therefore, it is believed that shopbots allow higher profits for retailers as they are able to target more easily their customers but do not guarantee lower prices(2). Besides this, Elisson & Elisson (2001), have also observed that shopbots do not guarantee lower prices. In fact, according to them, some retailers opt for a bait-and-switch strategy suggesting unfavourable products (low quality, high shipping costs, etc.) with a view to hoping that the customer will switch to higher quality when visiting the retailer’s website.

Shopbots may have a strong interest in maintaining that price dispersion (2). Indeed, if retailers sell at different price levels, the need for comparison will arise. Thus, this will bring more visitors on the comparison sites and retailers will be highly interested in appearing on the website leading to higher profit for the intermediary. Without price dispersion, the existence of shopbots is meaningless.

In a nutshell, shopbots face difficulties to define a viable strategy as they aim at suggesting the best deal to consumers (lower prices offer from retailers) while holding the need to have consumers visiting their website.

References:

(1) http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1947292
(2) http://www.heinz.cmu.edu/~mds/isem.pdf
(3) http://repository.cmu.edu/cgi/viewcontent.cgi?article=1046&context=heinzworks

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Margot Detollenaere
There is no longer any doubt that the impacts of the Internet throughout the economy and society are multiple and diversified. The Internet is clearly changing the traditional ways of doing business and I will specifically look at one of its impacts, which is the way that consumers make purchasing decisions. Nowadays, consumers are able to collate prices information and…
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There is no longer any doubt that the impacts of the Internet throughout the economy and society are multiple and diversified. The Internet is clearly changing the traditional ways of doing business and I will specifically look at one of its impacts, which is the way that consumers make purchasing decisions. Nowadays, consumers are able to collate prices information and product offerings to find the best deal. Self-evidently, online retailers must adapt themselves and overcome the difficulties of operating in a highly competitive environment.

In this context, since the late 1990s, Internet shopping robots (shopbots) are important drivers of lower consumer search costs and act as infomediaries (information intermediaries). On one hand, they enable consumers to compare information on prices, availably as well as product and seller characteristics from many online retailers relatively quickly. One the other hand, they enable firms to transmit information on their products. However, these comparison shopping sites raise lots of questions about the competitiveness and efficiency of product markets.

As two-sided platforms, shopbots’ optimal pricing decision depends on countervailing effects. To begin with, shopbots deal with cross-side network effects since firms are better off when the number of consumers increases and the other way round. But far more importantly, shopbots also face within-side network effects. The higher the number of online retailers entering the site, the stronger is the competition in the retail market. The firms’ willingness to pay to join the platform will decrease since the competition reduces prices and consequently firms’ profits. Moreover, online vendors regularly need to adjust their prices to remain competitive because of the fast-moving environment.

While shopbots increase market competition, they can generate efficient product markets. Indeed, consumers gain access to fewer retailers offering competitive prices. The larger vendor monopolies are therefore reduced. In this context, Moraga-Gonzàlez and Wildenbeest have analysed two different cases of comparison sites: homogeneous product sellers and differentiated product sellers. The former leads to inefficient market allocation, and the later can lead to market efficiency.

Regarding the first case, firms are not able to charge different on- and off-the-comparison-site prices. Consequently, the fees charged by the shopbots will be so high that it will exclude some online retailers. That implies products are sold at prices exceeding marginal cost. In the second case, firms can charge different on- and off-the-comparison-site prices, and the shopbots will attract all the vendors to the platform.

To cut a long story short, although competitive pressure has increased with the rise of shopbots, it also improves overall market efficiency.

SOURCES :

Cambini, C., Meccheri, N & Silvestri, V. (2011). Competition, efficiency and market structure in online digital markets. An overview and policy implications. Online http://revel.unice.fr/eriep/?id=3212#tocto1n4, consulted on 19/04/16.

Clarke, S. (2009). Shopbots: a syntactic present, a semantic future. Online http://www.icsd.aegean.gr/kotis/OE%26SW'09/papers/S-shopbots.pdf, consulted on 19/04/16.

Moraga-González, J. L. & Wildenbeest, M.R. (2011). Comparison Sites. IESE Business School Working Paper No. 933. Online http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1947292, consulted on 19/04/16.

Smith, MD. (2002). The impact of shopbots on electronic markets. Online http://www.heinz.cmu.edu/~mds/isem.pdf, consulted on 19/04/16.

MacKenzie, I., Meyer, C. & Noble, S. (2013). How retailers can keep up with consumers. Online http://www.mckinsey.com/industries/retail/our-insights/how-retailers-can-keep-up-with-consumers, consulted on 19/04/16.

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Gauthier Seny
The arrival of shopbots on the internet those two last decades has had a two-sided positive impact, as well for consumers as for the retailers. Consumers benefit from the lower search costs and retailers benefit from an additional visibility to consumers. Even though a price competition might lead to a zero-margin in worst cases, retailers generally benefit from shopbots. Shopbots…
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The arrival of shopbots on the internet those two last decades has had a two-sided positive impact, as well for consumers as for the retailers.

Consumers benefit from the lower search costs and retailers benefit from an additional visibility to consumers. Even though a price competition might lead to a zero-margin in worst cases, retailers generally benefit from shopbots. Shopbots are a tool for retailers in order to maximize sales from informed customers while at the same time they charge higher prices to uniformed customers to maximize sales as a whole. Attract customers by setting low prices is also a way to get customers’ fidelity. According to Bakos (1997), at equilibrium, lower search costs lead to lower and less dispersed retailer prices.

As shopbots are two-sided platforms, it means they have to deal with consumers on one side and retailers on the other side. How do retailers make a living? They might charge a fee on both sides, as with gaming platforms, but by doing so they could lose “participants” on both sides. If they charge consumers, it would decrease the amount of consumer “members” which would be followed by a decreasing interest for retailers to be on that platform. Following this logic, it would also lead to a new business that would compare shopbots for the consumers looking for the best fee/quality shopbot…

Shopbots will thus make a living by charging fees to retailers. As it is stated by Baye and Morgan (2001), shopbots will maximize profit in presence of price dispersion and when prices are set such that consumers use the shopbots. It is one thing to get some people on their site but it is another thing to get a purchase from those people.

REFERENCES:
http://researcher.watson.ibm.com/researcher/files/us-kephart/brand.pdf
http://www.heinz.cmu.edu/~mds/isem.pdf

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Jérémy Gandin
We saw that comparison shopping sites manage to make a living. It is indeed interesting as an intermediary providing information for shoppers and sellers. Comparison shopping sites are able to charge both of these stakeholders as it creates value in providing advertising for sellers and comparison information for buyers. From my point of view, Shopbots affect the behaviour of customers…
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We saw that comparison shopping sites manage to make a living. It is indeed interesting as an intermediary providing information for shoppers and sellers. Comparison shopping sites are able to charge both of these stakeholders as it creates value in providing advertising for sellers and comparison information for buyers.

From my point of view, Shopbots affect the behaviour of customers and firms cannot deny this. I think that being listed on the intermediary websites is important for the firms because a large part of the consumers likely use those websites. Moreover, most of the products sold by the firms aren’t really different. Hence, I think that gather all the prices will tighten the competition. However, I cannot state on the market efficiency.
What can make the difference is that comparison shopping sites provides information not only on prices but also on quality and feedbacks.

I found an interesting study from 2015 (http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1056b_ronayne.pdf ) that explains the impact of price comparison website on a homogeneous market. The study says that “While a consumer may not know all the firms in a market, a PCW can expose the full list of market offerings, maximizing inter-firm pressure.”
The author made a model where there are two types of shoppers: the ones who use the price comparison websites in equilibrium and inactive consumers who buy directly from a particular firm.
The study arrives as a conclusion that only one price comparison website increases competition on price between firms. Moreover, with the charge of fees, the prices go up. “The net effect is that prices increase for all consumers, who would be better off without the site.”
The author also checked with more than one price comparison website. If shoppers only check one price comparison website, this is the same situation as the monopoly.
According to the author, what is important is to know how many shopbots shoppers check.

Finally, the opinion of the author is that the consumers would be better off without the price comparison websites. “Regulatory bodies” should limit fees and the number of shopbots in the market and encourage consumers to compare products themselves.
http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1056b_ronayne.pdf

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Guillaume Van Lier
Online market places, online buyers and shopping agents has definitely given more facility to obtain price, quality and features information of a product/service. As they present the information in an accessible way and display links to the vendors’ websites, shopbots significantly reduce our costs of searching for the best deal. It has empowered buyers with purchase information and more choice…
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Online market places, online buyers and shopping agents has definitely given more facility to obtain price, quality and features information of a product/service. As they present the information in an accessible way and display links to the vendors’ websites, shopbots significantly reduce our costs of searching for the best deal. It has empowered buyers with purchase information and more choice to contact sellers with few geographic restrictions. This abundance of free and easy to get information on the internet poses a serious threat for business: cost transparency.

In principle, this puts pressure on prices, which leads to a pure and perfect competitive market and therefore a more efficient market. But we will see that this argument saying that this new way of doing shopping which would bring us to perfect competition and frictionless markets is partially true.

In order to overcome this fully price transparency and pressure on the prices, the business model often adopted by the producers is the dispersion at random of the listed prices. Despite the fully informed customer, in this model, firms earn positive profits at equilibrium and the market is thus not as transparent as possible.

Several concrete arguments demonstrate that this new way of doing shopping is not a guarantee of market efficiency and better competitiveness:

– price “online” has generally risen faster than offline
– fast and frequent price changes allow marketers to maximize profit
– “net customer” are getting wiser, if not disenchanted with constant small incremental price changes so that some companies are returning to fixed pricing in order to re-establish customer trust

But the companies know and discover how to combat this threat:

– price lining: offer different products/services at various price to meet different customers’ needs
– Dynamic pricing: charged prices vary from one market to another, depending on market conditions, differences in the costs of serving individual buyers and variations in the way consumers value the offering.
– Bundling: “packaging a product with other goods and services – can make it difficult for buyers to see through the costs of any single item within the bundle. It focuses buyers on the benefits of the overall package rather than the costs of each piece.”
– Innovation, creativity and flexibility: it always rewards firms that create new and distinctive products that improve consumers’ life and is considered as the optimal way to counteract this threat

In conclusion, we can say that the price transparency has undoubtedly created a more competitive market and pressure on prices. Despite the attempts of firms to try to counter this transparency (for example by introducing a variation of price at random policy), the best way to enjoy this phenomenon without suffering negatively is the flexibility, innovation and research of competitive advantages and added values. It is only in this sense that we can then conclude that shopbots increase the competitiveness between firms and participate in a more efficient market with very well-informed consumers.

SOURCES:

1. https://books.google.be/books?id=wLipF4vctU4C&pg=PA358&lpg=PA358&dq=shopbot+price+transparency&source=bl&ots=Y541Ae7nvE&sig=51t1lco_pDwB35NH6QqaEjATHP0&hl=fr&sa=X&ved=0ahUKEwjf2Kz39pjMAhXHfxoKHWq7AQcQ6AEIJDAB#v=onepage&q=shopbot%20price%20transparency&f=false (Chapter 10.1 to 10.11)

2. https://hbr.org/2000/03/cost-transparency-the-nets-real-threat-to-prices-and-brands

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Quévy Victor
In order to go further, we have to distingue 2 kinds of users : the “expert shoppers” and the “ novice shoppers”. Most of the shopbots will focus on the “expert shoppers” and on direct search i.e. when people will search a specific product and not only “something useful”. (1) While a price comparison site should make the market smoother…
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In order to go further, we have to distingue 2 kinds of users : the “expert shoppers” and the “ novice shoppers”. Most of the shopbots will focus on the “expert shoppers” and on direct search i.e. when people will search a specific product and not only “something useful”. (1)

While a price comparison site should make the market smoother and operate a conversion to a single price for one identical product, we can observe that is not always the case. In the article, the reason of a possible positive search cost if they want to observe and to compare prices. But there are other reasons like product category, number of sellers and market imperfections. (2)

Furthermore, for certain cases, simulations lead one to believe that the presence of shopbots could lead to phenomena such as cyclical price wars and widespread monopoly pricing. The presence of shopbots might lead to retailers engaging in a veritable “arms race” who can lower their prices faster (3).

Finally, the article seeks about the research of Baye and Morgan I think we could add 2 things that emerge from their analysis : the willingness to pay for the information of the consumers is positively linked to the benefits they expect to get from it and more you have retailers on your platform, stronger the competition on the retail market will be. (with an implication that the profits will decrease and the consumers will not agree to pay to be on the platform). (4)

In conclusion, most of the case we can say that shopbots decrease the competition and increase the efficiency of the market but we have to be vigilant to certain particular occasions that I spoke earlier and that are present in the article.

(1) http://www.ncbi.nlm.nih.gov/pmc/articles/PMC4182042/
(2) http://faculty.som.yale.edu/ksudhir/search-2.pdf
(3)https://books.google.be/books?id=8ZfK9ejLp2kC&pg=PA42&lpg=PA42&dq=shopbots+implication&source=bl&ots=2IV88tXid_&sig=E7ak-BdX2N2pSeLjJhzTRffIdrs&hl=fr&sa=X&ved=0ahUKEwjYocy_jZvMAhUE7xQKHefxA0cQ6AEINjAD#v=onepage&q=shopbots%20implication&f=false
(4) http://revel.unice.fr/eriep/?id=3212#tocto1n4

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Xoan-roi Gomez Marti
Shopbots can decrease market failures by tackling imperfect information issues, thanks to this informed consumer are able to choose which provider will better fulfil their expectation. In the Shopbots case Peter Diamond, Steven Salop and Joseph Stiglitz conclusion are in my opinion complementary to explain shopbots effect on competitiveness and markets efficiency: We could say that consulting a shopbot involve a…
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Shopbots can decrease market failures by tackling imperfect information issues, thanks to this informed consumer are able to choose which provider will better fulfil their expectation.
In the Shopbots case Peter Diamond, Steven Salop and Joseph Stiglitz conclusion are in my opinion complementary to explain shopbots effect on competitiveness and markets efficiency:
We could say that consulting a shopbot involve a search cost for the consumer, as all consumers don’t use shopbots on each online purchase, even if they know their existence or usefulness. This means that the cost of consulting a shopbot has to be lower than the benefits provided by the information. Consumers who do not use shopbots have to be or uninformed about their existence or at least doubtful about the fact that cost of consulting them will higher that the benefits. By this, we could assume that informed consumers have a lower search cost than uninformed consumers.
By extrapolating this we could maybe explain the existence of stores that sells at monopoly prices. Those stores will sell to uninformed consumers and those “consumers have an incentive to abstain from costly search so that a deviation by a firm is not rewarded by consumers”. When the others informed consumers will allow competitiveness.
This could lead to the intuition that consumers are influenced and help to influence other by their decisions. Never the less as explain by Michael D Smith: “while shopbots may place pressure on retailer margins in some circumstances, retailers retain numerous opportunities to differentiate their products, leverage brand names, set strategic prices, and reduce the effectiveness of consumer search at shopbots”. This is confirmed by the market if shopbots will pressure too much the margins of companies those will never freely pay in order to be listed in such tools. This strategy has to be is some way profitable, or at least cause no harm to the profit (brand reputation, financial benefits, advertisement…).
Smith, M. D. (2002). The impact of shopbots on electronic markets. Journal of the Academy of Marketing Science, 30(4), 446-454.

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Sorce Carl-Olivier
1. Hypothesis Before entering in the heart of the topic, we have first to make a hypothesis concerning the goods we are going to talk about. Some previous studies analyzed the purchase of relatively inexpensive goods, such as books (Chevalier & Goolsbee, 2003; Clay, Krishnan, & Wolff, 2001; Degeratu, Rangaswamy, & Wu, 2000). For such goods, there are of course price considerations,…
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1. Hypothesis

Before entering in the heart of the topic, we have first to make a hypothesis concerning the goods we are going to talk about. Some previous studies analyzed the purchase of relatively inexpensive goods, such as books (Chevalier & Goolsbee, 2003; Clay, Krishnan, & Wolff, 2001; Degeratu, Rangaswamy, & Wu, 2000). For such goods, there are of course price considerations, but the majority of consumers don’t feel like requiring online product search and price comparisons: shoppers would have perceived such small price disparities as negligible. Secondly, it is important to mention that unique designs and custom-made goods may be available from only one vendor, even if it is rarely the case [2]. Therefore, in the following sections we will only talk about durable goods of substantial value provided by several retailers.

2. How are Shopbots working?

All consumer purchase decisions are based on the possession or acquisition of information.
The emergence of shopbots has facilitated consumer’s ability to gather price and product information. Indeed, online shopping increase the number of alternatives considered, while reducing search time and costs. Furthermore, an online seller is able to update prices quickly. This implies that once a buyer has decided what to purchase (in terms of brand and model) there are only a few distinctions among online vendors of the goods. Therefore, the main distinguishing factor is price. In this case, this would lead to an increased price competition, ultimately leading to price convergence (Bertrand pricing model). Indeed, Tang et al. (2007) found that every 1% increase in shopbot use leads to $0.41 decrease in price levels in the online book retailing industry. Nevertheless, the literature explains that there is still a price dispersion (e.g., Brynjolfsson & Smith, 2000) as the result of the existence of a market segment of consumers who do not use shopbots (e.g., Waldeck, 2005) or of consumers who consider only a subsets of vendors.

3. Shopbots retailing strategy:

A simple strategy for shopbots developers to fit all search preferences is to let the shopbot covering all vendors of the market. In this case, all users can meet their search requirements by sub-selection. Moreover, a shopbot which has a full-coverage strategy would remove any question of market bias, increasing perceived fairness and building consumer trust (Datta & Chatterjee, 2008).

However, the full-coverage strategy leads to market inefficiency: search cost increase to consumers as a result of information overload (e.g., Öörni, 2003) and development costs increase for shopbots because of added complexity (programming, designing and so on). Because shopbots goal is profit maximization, they must adapt their strategy in order to balance their two competing goals: provide comprehensive and unbiased listing, and have a profitable revenue model (Michael Smith, quoted in Betts, 2001, p. 9).

4. Shopbots and consumers’ behavior:

First of all, consumers’ behavior is influenced by their expectations regarding sellers or product attributes. Sellers may differentiate themselves with better shopping functionality and more products information. This reduces the elasticity of demand of some consumers by increasing their switching cost. Confidence in transaction and loyalty are also taking into account and gives a crucial competitive advantage to the branded seller especially in e-commerce.

Secondly, consumers’ behavior is influenced on their awareness of search technology and of its ease in Web navigation [3]. Thus, some consumers will be more or less informed about prices. On the other hand, some consumers are price insensitive and attach more value to a seller’s additional or specific service offering.

5. Conclusion

As a conclusion, recent research has shown that while some shopbots users are very price sensitive, shopbots consumers are highly influenced by online retailers with a strong brand image and retailers they have already been dealt with. Despite the large amount of information provided by pricebots, shopbots consumers remain asymmetrically informed about product attributes such as service quality and perceived brand and prior experience as alternatives atributes for this missing information. Therefore, in my opinion, shopbots, despite the fact that they provide more transparency, doesn’t lead to a strengthen competition between retailers. Indeed, as some consumers don’t use shopbots services, the only segment where competition is strengthened is the segment of regular shopbots users.

References:
[1] Passyn, K. A., Diriker, M., & Settle, R. B. (2013). Price comparison, price competition, and the effects of ShopBots. Journal of Business & Economics Research (Online),11(9), 401-n/a.

[2 ]Allen, G., & Wu, J. (2010). How well do shopbots represent online markets? A study of shopbots’ vendor coverage strategy. European Journal of Information Systems,19(3), 257-272. doi:http://dx.doi.org/10.1057/ejis.2010.6

[3 ]Smith, M. D. (2002). The impact of shopbots on electronic markets. Academy of Marketing Science.Journal, 30(4), 446. Retrieved from http://search.proquest.com/docview/224872167?accountid=12156

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Ophélie Duquesne
Shopbots are comparing shopping websites that “reduce buyer search cost for product and price information”. (1) In perfect information it obviously increases the competition as customers are aware of the different prices charged by the different sellers and can chose the lowest price. The higher the number of firms will join the platform, the higher the number of consumers who…
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Shopbots are comparing shopping websites that “reduce buyer search cost for product and price information”. (1) In perfect information it obviously increases the competition as customers are aware of the different prices charged by the different sellers and can chose the lowest price.

The higher the number of firms will join the platform, the higher the number of consumers who will go on the gatekeeper’s site. The willingness to pay for the infomediary of the consumer will thus be higher. But we can also think the other way around as firms will also be more willing to join the platform if they expect that the number of consumers using the platform will be high. Moreover the more firms there will be, the stronger the competition. But overall market efficiency improves. (3)

To avoid the Bertrand paradox and to maximize the gatekeeper’s profit, it is optimal that all consumers participate to the market but not all firms. The consumer surplus will increase as prices will decrease but they will remain higher than the marginal price. Panos M. Markopoulos and Lyle H. Ungar showed that sellers are better off if they collude with shopbots. (2) Indeed sellers will agree on a specific price, which will increase the buyers satisfactory but in the meantime not decrease their own profits. By doing this, they expect a long term increase in sales. But this implies that no firm will engage a price war by using pricebots, otherwise they won’t be better off with shopbot.

As shopbots are an example of two-sided platforms, we can see an indirect network effect, as an increasing number of buyers on the platform will increase the utility of the sellers.

(1) http://revel.unice.fr/eriep/?id=3212
(2) http://www.agent.ai/doc/upload/200406/mark00_1.pdf
(3) Wan, Y. (2009). Comparison – Shopping Services and Agent Designs. Information Science Reference.

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Jooris Christelle
The shopbots are two-sides platforms which play the role of intermediaries between the sellers and the buyers by allowing sellers to communicate each information of their products to the buyers. (1) Besides, shopbots allow consumers to compare easily similar products in order to choose one that corresponds to them. Then the shopbots reduce the cost of buyer’s researches because just…
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The shopbots are two-sides platforms which play the role of intermediaries between the sellers and the buyers by allowing sellers to communicate each information of their products to the buyers. (1) Besides, shopbots allow consumers to compare easily similar products in order to choose one that corresponds to them. Then the shopbots reduce the cost of buyer’s researches because just one click is needed to obtain the information’s. (2) We will examine if the shopbots increase the competitiveness of the market products and if they improve the market efficiency.

We can notice some external effects are presents in the shopbots platforms. Indeed, there are two positive cross-side effects. On one hand, sellers are happier when the number of buyers increases because they can sell their goods to more people. On the other hand, buyers appreciate when the number of sellers increases because they have more product choices. But there is also one negative within-side effect. Firms will not enjoy a new entry of a firm on the shopbots. In fact, at most firms join the platform at most the competition will be strong and it will decrease the prices and then the profits. (1)

Concerning the competitiveness between the products, we can suggest that it is impacted by the shopbots existence. We notice that the probability that the buyer choose an offer between each offers is a downward function of price. (3) Indeed, most of the time, we imagine that buyers base their purchase decision on the price for identical goods (2). With the help of the comparison website, they can easily see all prices for their researched product. In consequences, that forces sellers to compete on prices. In this case, we observe that price dispersion follow a non-linear decrease with the website comparison. Besides, at most there are sellers on the shopbots, at most it will impact negatively the price of a product and the price dispersion because the competition will be stronger. (4)
But prices are not always the purchase’s determinant factor. In fact, buyers can also be less price sensitive and be interested by non-price attributes as vendor reputation, the reliability, the transaction, payment factors, the delivery options, the like (2), the shipping cost and the availability. (1) All these elements allow sellers to differentiate their homogenous goods and then differentiate their prices that leads to price dispersion. In addition, brand, trust and awareness are high significant in online markets and can definitely influence the consumers decisions. (1) That explains that well known brands and trustful brands can put higher prices which also lead to price dispersion. In addition, developing loyal consumers is then very important to the brand. Indeed, the creation of loyalty is the best protection against price competition. (2) Then, some buyers can choose high priced goods even if they are aware of the price disparities, because they prefer a specific vendor or several non-related price attributes.
Besides, studies shown that current online shopper do not often use price comparison website. Indeed, just a limited segment of the population use these kinds of tools. That means the other segment of the population ignore the price dispersion and then may not absolutely buy the cheaper product. (2) Then, firms which don’t want to offer low prices can try to attract these people.
In addition, consumers usually base their purchase decisions on information and especially when the purchase has an important value for them. That means that they generally don’t take the time to search information for impulse purchase, routing buying and ordinary goods. (2) That involved that people are not conscious of the price dispersion for this kind of purchases and then the sellers don’t have to compete on prices.

We can then conclude that the shopbots increase the competition between the products. Indeed, it rises price competition for the products which don’t have other advantages perceived by buyers than the price. For the firms which enjoy others advantages than price (time delivery, notoriety, trust,…) , they can compete between them on these advantages. In each case, the shopbots give the information about the price and the other advantages to the buyer. That means that the market products are more competitive because each firm has to provide best advantages than its competitors. Besides, the buyers are not the only ones to be well informed. Indeed, shopbots allow sellers to observe the buyers choice behaviour on these kind of website, which can allow them to review their online competitive strategy.

In general, the online markets are more efficient because price levels, menu costs and price elasticity are respected. (5) The market efficiency is defined by the fact that all prices reflect all available information. (6) By giving all product information’s expected by the consumer’s, the shopbots seem to lead to more transparent markets and to a perfect information situation. Indeed, the buyers can be totally informed when they take their purchase decision. (3) But, we have also to take into account that shopbots allow sellers to pay an additional fee in order to be better positioned on their website which influence the customers’ choices. Then, it reduces the market transparency. Besides, we can think that brands could put different prices for the same product on the online market. Brands are also used to frequently change their online prices in order to avoid competitors to predict it. (7) All these elements lead to conclude that shopbots don’t really improve the market efficiency.

(1) http://revel.unice.fr/eriep/?id=3212#tocto2n1
(2) Passyn, K. et al. (2013). Price Comparison, Price Competition, And The Effects Of ShopBots. Journal of business & economics research. 11(9), 401-415.
(3) Larribeau,S., Penard,T. (2003). Que peut-on dire des stratégies tarifaires sur Internet ? une étude économétrique sur la vente en ligne de CD en France. Système d’information et management. 3, 1-33.
(4) Tang., Z. et al. (2007). The impact on shopbots use on prices and prices dispersion: evidences from online book retailing. Heinz College research.
(5) https://books.google.be/books?id=2w7HH2dvVHgC&pg=PA4&lpg=PA4&dq=market+efficiency+shopbots&source=bl&ots=vjSnMy7FBl&sig=pavUjDQxsRvnkFVD164eogMiL6E&hl=fr&sa=X&ved=0ahUKEwja35S3vILMAhWGmw4KHaSLCfoQ6AEIXTAI#v=onepage&q=market%20efficiency%20shopbots&f=false
(6) http://www.investopedia.com/articles/02/101502.asp
(7) Baye, M. et al. (2004). Temporal price dispersion: Evidence from an online consumer electronics market. Journal of Interactive Marketing, 18 (4), 101-115.

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Antoine de Halleux
At first sight we may think that shopbots effectively increase product markets competitiveness and market efficiency. But we have to look deeper to investigate if it’s really the case. As we’ve seen in the article, there can be two types of consumers, the “informed” ones and the “uninformed” consumers. Only the informed consumers are using the shopbots. But there isn’t only…
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At first sight we may think that shopbots effectively increase product markets competitiveness and market efficiency. But we have to look deeper to investigate if it’s really the case.

As we’ve seen in the article, there can be two types of consumers, the “informed” ones and the “uninformed” consumers. Only the informed consumers are using the shopbots. But there isn’t only one characteristic defining the consumers and their use of shopbots. The affinity to a particular website is also to be taken into account. Also, the price comparison is more effective for the consumer is it concerns the exact same good. With similar goods, there’s an effective differentiation that can occurs, depending on various factors such as quality, brand recognition etc.
Regarding the online retailers, I think that there’s also different factors affecting their utility of using the shopbots. They can aim different consumers, from the informed to the uninformed consumer. They can also try to create a website loyalty to their buyers by offering them a better experience, loyalty coupons, etc. Online retailers can also react to price changes from competitors much faster. They are in a much more dynamic process than the traditional markets. Therefore, the price changes can also impact a lot the buyer’s decision. These price changes can happen for several reason, and not just for reacting to the competition, as mentioned in the article.
We can see that, added to what we already knew about shopbots, the utility of using them from the buyer and the retailer perspective is in fact very complex, since they depends on many factors. It’s then difficult to assess in a precise way if these shopbots increase the global competition.

But if we look at the competition concerning only the online retailers using shopbots and aiming for the informed consumers of the same good and that this buyer hasn’t incentives to use a website rather than another and thus rely only on shopbots, we can say that the shopbots are indeed increasing the competition. The market efficiency is also increased in this case. We can say that according to the main reason that the information becomes available for everyone and that then the market has the complete information regarding the prices. But we have to note that it’s only for the specific scenario cited above.

References:

– Cambini C., Meccheri N. and Silvestri V., Competition, efficiency and market structure in online digital markets. An overview and policy implications, retrieved on http://revel.unice.fr/eriep/?id=3212#tocto1n4

– Smith M.D., The Impact of Shopbots on Electronic Markets, retrieved on http://www.heinz.cmu.edu/~mds/isem.pdf

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Lyse Saintjean
First of all, the comparison shopping sites are become more than a simple tools to compare prices for the customers. It is a real strategic tool for the firms who use it. More and more shopbots play the role of intermediaries and this because they can choose which sellers represented on their sites, which fees they must to pay, who…
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First of all, the comparison shopping sites are become more than a simple tools to compare prices for the customers. It is a real strategic tool for the firms who use it. More and more shopbots play the role of intermediaries and this because they can choose which sellers represented on their sites, which fees they must to pay, who has access to the information and the products, etc (1).

For the customers the advantage is simple, the comparison shopping sites allow mainly to reduce the costs of search and find the products that they want at the best price.

For the firms, there are several reasons to embark on these sites. The shopbots represent a help to develop it sales and attract new consumers who will not come in their official websites (1). In this way, the shopbots create value for the firms but these sites increase also the price competition. Indeed, the firms must to pay fees to be present in the shopbots and if they want to emphasize some products (to sells them faster or make more sales), they must pay more fees. Finally, the firms pay for the customers who visit their products and maybe buy them. In this system, the firms have to adapt their prices to stay competitive and profitable. But the competition resides also between the products. The firms want to propose the best products at the best prices and the large range of product possible, so they don’t propose their entire product but well a special selection of products, chose to maximize their prices and their sales.

The consequence is that the equilibrium of price is not respect with the comparison sites. The firms adapts their prices to the competition, the fees and for maximize their profit compared to others firms. So I think that the market efficiency is not optimal in presence of shopbots.

Source :
(1) Moraga-Gonzalez et Wildebeest (2011). Comparison Sites, online : http://www.tinbergen.nl/~moraga/CompSites.pdf
(2) http://www.ecommercemag.fr/Thematique/marche-prospective-1010/etudes-cibles-10044/Breves/Exclusif-les-comparateurs-de-prix-passes-au-crible-45486.htm
(3) Simth M. (2002). The impact of Shopbots on electronic marketss, online : http://www.heinz.cmu.edu/~mds/isem.pdf
(4) Passyn K, Diriker M., Settle R. (2013). Price comparison, price competition and the effects of shopbots, online : http://www.cluteinstitute.com/ojs/index.php/JBER/article/viewFile/8068/8122

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Gregory Merguerian
A quote from the Wall street journal says that shopbots will considerably increase the price competition between retailers and thus increase pricing pressure but also limit the value of the retailer’s brand, it is also worth noting that customers prefer buying from well-known retailers (Smith,2001). An article of the Economist reinforces this trend by saying that firms are afraid of…
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A quote from the Wall street journal says that shopbots will considerably increase the price competition between retailers and thus increase pricing pressure but also limit the value of the retailer’s brand, it is also worth noting that customers prefer buying from well-known retailers (Smith,2001). An article of the Economist reinforces this trend by saying that firms are afraid of losing customers and therefore improve their offer. Unfortunately for the customers it is not entirely true. It is true that shopbots have decreased consumers’ search costs and have put some pressure on retailers. But although some products are part of the same good category and are therefore in competition, they are not identical and many other factors than price intervene in the customer’s choice.

The first point that is neglected by shopbots is the quality of the service. This aspect is essential for customers since there is a spatial-temporal separation between customers, retailers and products (Brynjolfsson, 2001).

Moreover, it is difficult for shopbots to communicate on that. To ameliorate shopbots’ algorithms they could take into account the customers reviews. Reading these reviews is time consuming for clients and thus contributes to the search costs.

Last but not least, since shopbots are an intermediary between customers and retailers, both but mainly one (retailers) can strong arm the other and that can end up by not having the best offer for consumers. It is already happening with some shopbots where finding the best price is not as easy as before. Retailers are the main source of income for shopbots services and these have thus no choice but to comply.

In conclusion the competitiveness may have increased at first but retailers have found some ways to turn it around.

Concerning the efficiency of the market, a study conducted by Moraga-Gonzàlez and Wildenbeest showed that two situations can lead to two different outcomes. The first situation is when the products are homogenous and that the online retailers cannot charge different on and off comparison site prices. Then, the comparison website will increase its fees at a level that will exclude some retailers. This situation will lead to market inefficiency.
On the other hand, if market retailers can charge different prices, then all competitors will be attracted to the platform and this will lead to an efficient allocation.

Smith,M. (2002). The impact of shobots on electronic markets. Online http://link.springer.com/article/10.1177%2F009207002236916 consulted on the 15/04/16.

Smith,M & Brynjolfsson,E. (2001). Consumer decision making at an internet Shopbot. Online http://ebusiness.mit.edu/erik/CDIS%202001-07-24a.pdf consulted on the 15/04/16.

Moraga-Gonzàlez,J & Wildenbeest,M. (2011). Comparison sites. Online http://www.tinbergen.nl/~moraga/CompSites.pdf consulted on the 15/04/16.

Economist. (2015). Costly comparison. Online http://www.economist.com/news/finance-and-economics/21657458-price-comparison-websites-should-help-lower-prices-left-unchecked-they-may consulted on the 17/04/16.

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Coeck Chesley
Today, shopbots provide to users to compare different products easier than before. On one hand, they can see what differ the products in term of quality, price, popularity etc. On the other hand, the decision of taking a product rather than other is still difficult. But what about the sellers of the different products? I will argue my comment by…
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Today, shopbots provide to users to compare different products easier than before. On one hand, they can see what differ the products in term of quality, price, popularity etc. On the other hand, the decision of taking a product rather than other is still difficult. But what about the sellers of the different products? I will argue my comment by giving a different example than in the article, maybe more concrete: the comparison site Bravofly.

First, when we talk about comparison, we can see there is a huge impact on the users’ decision. Indeed, when you are offered a two different prices for the same product, you will choose the one with the lower price and so, it will increase your welfare. On the opposite, it will be quite difficult for the two sellers to distinguish the same product except in term of price. We reach here what the article call the Bertrand paradox. When you take the two same flights services to go to Portugal for example, you will be more incentive to take the one with the lower price. As a matter of fact, with the increasing of the life-costs for example, more and more people try to do some savings. So the competition become to be really though if people are not so well informed, only on prices for example.

On the opposite, we can see that popularity is quite important too. Actually, when you have to take the plane, you can also take into consideration the quality, the reputation the company which you want to travel with but also the departures. We can easily see that huge companies like Brussels Airlines, even if they are more expensive, a majority of people will choose them due to those information shared. So, in a certain way, the competition could be less though if the consumer is well informed about the product or the service.

In term of efficiency, it could go on both way. In my opinion, efficiency could decrease or increase. Actually, it depends on the switching costs. It depends on the time, the money that people are ready to spend to choose, to compare, and to decide which company they will take. If they already have a preferred company like Ryanair and they have chosen them because of their capacity to suggest cheap travel in regard with other companies like Brussels Airlines, the switching costs won’t be huge so the efficiency could increase. But if someone who is used to take Brussels Airlines switch to Ryanair because of external reasons (an increase in life-costs so less money, no more place in the Brussels Airlines’ flight …), his welfare will decrease because he doesn’t find back the features of his regular company (comfort, flight hours …) so the switching costs are quite big even if the money spent is less; it will lead to a decrease in efficiency.

To conclude, the case is quite ambiguous. The competition could increase if the users are not well informed, if the companies try only to focus on the features they are good on (price in most of the case like Ryanair for example). But it could well decrease if the users are well informed, once all the companies have to provide to the users all the information they need like the price, the departures, the time it will be needed to reach the destination …. But it also depends of the rationality of the consumers.

References
http://www.Bravofly.com

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Tiphaine Vanderstokt
It is difficult to determine whether or not the competition increase at shopbots. I think it has done it in general but to really determine if the competitiveness of product market, we have to take into account that there exists different strategies at shopbots. First, the model of the Bertrand competition where the strategy is founded on price sensitivity of…
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It is difficult to determine whether or not the competition increase at shopbots. I think it has done it in general but to really determine if the competitiveness of product market, we have to take into account that there exists different strategies at shopbots.

First, the model of the Bertrand competition where the strategy is founded on price sensitivity of customers only. With this strategy, the competition will increase between firms [2]. Indeed, there is a positive correlation between the number of firms on the platform and the strength of the competition in the market [1]. And so, when there are a lot of firms on the platform, the prices decrease but in the same time, it reduces the desire of the firms to pay to be on the platform. The shopbots have to take those effects to determine its prices. “Baye and Morgan find that the gatekeeper’s profits are maximized in a dispersed price equilibrium in which all consumers access the gatekeeper’s site, but not all firms do so”[1]. Thus, to avoid the Bertrand paradox, the shopbots prefer thus that not all the firms come on the platform because otherwise, the shopbots’ profit will decrease too. Thus, the optimal pricing for shopbots is to set a price for firms higher than the socially optimal one. Doing so, the competition increase because some firms are on the platform, the prices decrease but is still higher than the marginal one. [1]

A second pricing strategy consists in including the customers’ loyalty [2]. With this model, there are two types of customers: loyal ones and switching ones and so, firms on the platform adopt mixed strategy. Compared to the offline market, the average prices of firms using the platform might not decrease [2]. Indeed, it depends of the number of switching customers. If there are a lot of switching customers and few loyal ones, then the competition increase between firms and prices decrease [2]. But if there are a lot of loyal customers and few switching ones, then the competition is not higher than on the offline market and the prices does not decrease.

There also exist other strategies like, one taking into account the retailers’ inventory levels or strategies that combined others but here, it is even more difficult to determine if the competition increase or not [2].

Finally, we also have to take into account that firms can also, thanks to the Internet, observe behavior of consumer and thus, determine consumers’ preferences and price sensitivity [3]. Therefore, “the competition intensification effect may be overwhelmed by the price discrimination effect” [3]. The prices can increase but it does not mean that the competition between firms has increased too [3].

[1] Cambini, C., Meccheri, N. & Silvestri, V. (2011). Competition, efficiency and market structure in online digital markets. An overview and policy implications. European Review of Industrial Economics and Policy, 2. Online http://revel.unice.fr/eriep/?id=3212#tocto1n4

[2] Samusevich, R. (2014). Computing and evaluating pricing strategies in price comparison shopping. https://www.fel.cvut.cz/cz/education/prace/00032.pdf

[3] Chen, Y. & Sudhir, K. (2002). When shopbots meet emails: implication for price competitions on the Internet. Working Paper http://papers.ssrn.com/sol3/papers.cfm?abstract_id=291199

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Derek Cangiano
I believe it is almost certain that the advent of "Shop Bots" or Ecommerce comparison tools have provided consumers with lower search costs which has resulted in far better pricing and overall market efficiency for commodity type products. Creating an effective and widely used pricing discovery tool has resulted in greater market efficiency and increased competition for both goods and services.…
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I believe it is almost certain that the advent of “Shop Bots” or Ecommerce comparison tools have provided consumers with lower search costs which has resulted in far better pricing and overall market efficiency for commodity type products.

Creating an effective and widely used pricing discovery tool has resulted in greater market efficiency and increased competition for both goods and services. The key to this, however, is in developing the right tool and increasing adoption. In 2002, Economists Brown and Goolsbee found that for every 10% increase in internet usage, online life insurance quotes decreased by 5%. This demonstrates the effect that greater consumer awareness and the elimination of search costs can have on a firm’s ability to price discriminate for commodity prices/services.[1]

In addition, the purveyors of these online shop bots are well aware of the need to continually increase the quality of their platform or risk being displaced by a competitor. This competition can be easily observed in the online travel booking agency where overall agency fees charged to the airlines/hotels have been decreasing due to the low barriers to entry and attractive economics of the industry. This competition among effect is largely ignored by the academic models that suggest Price Comparison Websites (PCWs) lower overall benefits to consumers, although David Ronayne of Warwick University suggests that the presence of intense competition among these price aggregates can eliminate the negative effects associated with charging the producers a referral fee [2]

1)http://revel.unice.fr/eriep/?id=3212#tocto2n1
2)http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1056b_ronayne.pdf

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Sylvie Rioda
This article deals with how shopbots (comparison shopping websites) create value either for retailers and consumers. Price comparison websites are intermediates between these two actors of our society. They became an important innovation in our financial landscape. Indeed, price comparison websites have been incredibly popular over the past twenty years to such an extent that the English market research group…
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This article deals with how shopbots (comparison shopping websites) create value either for retailers and consumers. Price comparison websites are intermediates between these two actors of our society. They became an important innovation in our financial landscape. Indeed, price comparison websites have been incredibly popular over the past twenty years to such an extent that the English market research group Mintel estimated 70% of internet users have once used a shopbot.

Both firms and consumers may benefit from this important internet tool. As James Daley, founder and managing director of Fairer Finance (the consumer group and financial ratings website), underlines in his article for the Telegraph: “by allowing you to compare dozens of policies at the click of a button, they (price comparison websites) have forced firms to compete on price, and they’ve helped smaller brands get a foothold in a competitive market”.
My research led me understand that the impact of price comparison websites can be either positive or negative.

Positive impacts can be understood in terms of minimizing search costs and searching better deals. Indeed, as Marzena Lipman concluded with her research on the consumer perception and experiences of PCWs (Price Comparison Webstites): “many have noticed a rise in costs of basic products and services, such as utilities and insurance in the last few years. They use the PCWs to see if they can find a better deal that saves them money on bills.

Consequently, the main perceived benefit of PCWs is getting better deals and saving money.”
This observation reflects the consumers’ perception. But in reality, one can say that this observation is flawed. The price comparison websites tend to push up prices and usually don’t work unless consumers check every single website. Moreover, as researchers from Warwick University discovered, having high numbered price comparison websites could have the effect of pushing prices up, since the need to pay fees to the website increases costs to the industry.

To conclude, I would like to suggest the lecture of Un-Kon Lee’s 2014 research on information deception in price comparison websites. In this study, the author challenged to validate the “impact of information deception by the price comparison website on the consumer behavioral intentions.”

References:

Mintel: http://www.mintel.com/press-centre/technology-press-centre/price-comparison-sites-its-a-click-with-60-of-brits
James Daley : http://www.telegraph.co.uk/finance/personalfinance/insurance/10894742/Are-price-comparison-websites-too-powerful.html
Fairer Finance : http://www.fairerfinance.com/
Marzena Lipman : http://www.consumerfutures.org.uk/files/2013/07/Price-Comparison-Websites-Consumer-perceptions-and-experiences.pdf
Cassie Werber: http://qz.com/356558/paradoxically-price-comparison-sites-may-be-making-everything-online-more-expensive/

David Ronayne, Warwick University: http://www2.warwick.ac.uk/fac/soc/economics/research/workingpapers/2015/twerp_1056a_ronayne.pdf
Un-Kon Lee : http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&ved=0CC0QFjAB&url=http%3A%2F%2Fdownloads.hindawi.com%2Fjournals%2Fijdsn%2Faa%2F270685.pdf&ei=37k2VdrdCoHQOtW_gfgB&usg=AFQjCNH30z1fAzYEkf6UcBKaRoCqdMigvg&bvm=bv.91071109,d.ZWU

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Po-Wei Huang
I totally agree about the perspective of price comparison, because nowadays there are no difference between the products, the only point for customer is the price. the customers will buy the product in the store which has the lowest price. But the problem is there are so many real stores and online stores, it's hard for the customer to find…
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I totally agree about the perspective of price comparison, because nowadays there are no difference between the products, the only point for customer is the price. the customers will buy the product in the store which has the lowest price. But the problem is there are so many real stores and online stores, it’s hard for the customer to find all the prices of all the stores, especially for the people who didn’t really familiar with internet. The service like shopbot is really important for those customers, and I think this service is good to the customer and retailers. Because the customer will get their ideal price, and the retailer would receive very good feedback from their promotion campaign. Because even there are promotions for the products, but not every customer will notice that. but through the shopbot, the promotion will be noticed by the consumer easily, so i think it’s good for both side.

I think there are some other issues about what make the customer buy, some products seldom decrease prices in all the shops, for example: Apple Macbook, so some customer start to decide which shop to buy on the service after purchase, but not only on prices

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Rui Moutinho
Shopbots are seeking agents in multiple online sellers information about prices and other attributes of consumer goods and services in order to facilitate the comparison of attributes at the time of the purchasing decision. The Shopbots are much more than a generic search engine precisely because they are focused on a specific niche of the Web ( virtual stores for…
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Shopbots are seeking agents in multiple online sellers information about prices and other attributes of consumer goods and services in order to facilitate the comparison of attributes at the time of the purchasing decision. The Shopbots are much more than a generic search engine precisely because they are focused on a specific niche of the Web ( virtual stores for a particular product ) .
Thus, we can get an extensive coverage of products in a few seconds, this coverage much larger than a human patient and determined buyer after hours of manual search . Through the use of this tool it is possible to establish a much more user-friendly interface between user and machine to the task of comparing prices and attributes of products that are sold on the Web. Research by RB Doorenbos , O. Etzioni , and DS Weld ( Doorenbos et al . , 1997 ) shows that , by using this tool , the time taken to complete the task of researching the best price of a product is much less than through the comparison site to site .
We split the shopbot in 3 different categories as the services ( Fensel , 2001) :
– Liabilities purchasing agents seeking information products based on explicit user request.
– Active purchasing agents that attempt to anticipate the wishes of the user proposing suggestions. They look for products that may be are interesting to the user based on a profile.
– Selling Agents who try to anticipate user desires not only considering one user, but also considering other users.
It is clear that the services of comparison have grown strongly in recent years. However, there is an impact on online stores and their prices, such impacts cannot be generalized and should be evaluated specifically for each type of product.
As the complexity of the attributes of the description of a product is greater than the complexity of a list of sites, the wrapper of the shopbot tends to be more complex than the “search machine”.
Consumer behaviour in seeking information is conducted based on two factors: cost and benefit. The amount of search performed by the consumer is related with the value of the information, the cost of processing information from the consumer and the direct costs of search, for example: cognitive effort.
Therefore, as the treatment is a cost, people tend to accept the information in the way that is presented to them instead of using the cognitive effort, which in my opinion, makes the shopbot a very positive impact on market efficiency.

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C.M
On one side you have the “Bertrand paradox” based on full transparency of prices and one the other side; you have the “Diamond paradox” where “all firms will price at the monopoly level and no consumer will search”. A new player comes in the middle of these two models called shopbots; charging sellers to advertise on online price comparison…
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On one side you have the “Bertrand paradox” based on full transparency of prices and one the other side; you have the “Diamond paradox” where “all firms will price at the monopoly level and no consumer will search”. A new player comes in the middle of these two models called shopbots; charging sellers to advertise on online price comparison businesses and offering free access to customers. To understand the negative aspects of this model, I have based my research on a study and technology

A study from Jie Zhang & Bing Jing, “The Impacts of Shopbots on Online Consumer Search”, demonstrate an interesting result in which consumers tend to do deeper research on online retailer websites after using shopbots. Therefore, in that case, shopbots reduce customers’ search cost. Based on this study, shopbots don’t increase the competitiveness of product markets and enhance market efficiency but, indirectly, impacts the online retailer websites.

The Baye and Morgan model is maybe losing interest from a customer perspective since the emergence of certain technologies such as access to high speed internet, smartphones and social media. Companies, such as Google, are collecting vast amounts of data, trying to work out how to analyse them into relevant and useful information about customers. Real time marketing could be replacing price comparison website by proposing an individualise and specific product to a customer, cutting down the cost search and killing the shopbot businesses that are useless if product advertising including price information arrives straight on to the customers. Companies have to adapt constantly to gain a competitive advantage and affect the market. For example, Wishabi is a company that has re-invented the circular shopping experience transforming print circular into a dynamic digital experience and use intelligent native advertising to distribute it through a premium media network. Wishabi’s technologies, helps companies deliver targeted content to each and every consumer. This example shows that innovation doesn’t have any boundaries and new models will appear based on old one with a technology twist into it.

references:
http://www.utdallas.edu/~murthi/Papersubs/Zhang_Jing.pdf
http://www.wishabi.com/

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Carla
When we talk about shopbots we are talking about consumers and sellers, and both are affected differently by the use of shopbots. In one hand we have the consumer, and we can say that the shopbots becomes attractive to them when price dispersion is high, because with this service the consumers can obtain prices of the seller within seconds, but…
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When we talk about shopbots we are talking about consumers and sellers, and both are affected differently by the use of shopbots. In one hand we have the consumer, and we can say that the shopbots becomes attractive to them when price dispersion is high, because with this service the consumers can obtain prices of the seller within seconds, but they might still need to look extra at each individual online store and end up with an intensified search.

In the other hand the shopbots are sometimes a threat to seller profits, shopbots do reduce the cost and risks in searching and encourages consumers to investigate more stores than just to choose the one with the lowest price, so this makes sellers engage in a price competition because the use of shopbots don’t necessarily stop consumers to intensify their search. Because it is well know that consumers also care a big deal on quality attributes than simply price when choosing a store to buy from. So sellers may need to invest in improving the service quality, advertising, promoting their brand and building up a reputation, so it’s not just a price competition. If sellers can continue with this mixed strategy with both price and quality differentiation maybe market efficiency can be obtained. But as the market is right now, how fees work, shopbots don’t increase competitiveness and market efficiency.

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Zhang Xiaomeng
While the online shopping bring a lot of convenient to customers, most busy consumers do not have the time or the willingness to visit several websites and compare prices. Shopbots provide the comparing method for the lowest price for same types of products comparatively cost less. The way for shopbots website to get profits is from "one click” calculation and…
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While the online shopping bring a lot of convenient to customers, most busy consumers do not have the time or the willingness to visit several websites and compare prices. Shopbots provide the comparing method for the lowest price for same types of products comparatively cost less.

The way for shopbots website to get profits is from “one click” calculation and charging the name showing on the price list. Consumers might think that results are sorted by store rating or best pricing which the results are primarily sorted by retailers who paid for appearing at the top of the list in actual. For online retailers, in order to entry and break exit barriers to show on shopbots website, they have to earn enough gross margins to offset the “one click” cost and advertising expenditures. They add these marketing and advertising cost into products which in some cases online prices are higher than offline price which illustrate the online prices are not uniformly decreasing. Instead of uniformly low prices, online firms are using the Internet to create a market where uniform prices are increasingly rare.
http://neumann.hec.ca/pages/jacques.nantel/notes/nantel/pricing.pdf

Sometimes when the consumers face to a perfect research result, retailers can balance information in their favor and change characters like logistic time and delivery cost. It provides a chance for retailers to get profits from this irrational consumer behaviors.

Price wars would certainly decrease the number of retailers in the long term and thus decrease the profitability of Shopbots. Hence, Shopbots are somehow stuck in the middle: On the one hand, the search process has to deliver some kind of utility to consumers and thereby generate significant web traffic. On the other hand, the utility of the search must not be too high to fuel ruining price wars among the participating retailers.
http://is2.lse.ac.uk/asp/aspecis/20080160.pdf

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Kerem Altın
First of all,i think that the idea ‘fully informed consumers buy from the cheapest seller’ may not be applicable in the real world.To give a concrete example,i searced ‘iphone 5s 16 go’ at fr.shopping.com .When i found what i’ve been searching for (best result for my search was the 8th one because of the site displaying related products first like…
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First of all,i think that the idea ‘fully informed consumers buy from the cheapest seller’ may not be applicable in the real world.To give a concrete example,i searced ‘iphone 5s 16 go’ at fr.shopping.com .When i found what i’ve been searching for (best result for my search was the 8th one because of the site displaying related products first like iphone 5 ),i clicked on it and i saw that the price range is from 299.92 Euros to 912.85 Euros for a product which key characteristics are indicated in the search.Then i clicked the cheapest one which is a link to orange.fr and i realised that the price is to buy with 24 months contract.To make a good comparison,i tried to find the ones without contract and it took me so long because orange.fr which is obviously the most paying one to the site has so many links with different prices directing you to the same exact page.At the end,i found three exactly same products.Then i started to think why there is 100 Euros of price difference between the cheapest one and the most expensive one : Does the cheap one has some issues ? So i needed to do more research in the websites of sellers.

Briefly,i don’t think that comparison shopping sites reduce our cost of searching enough to take a look at.Personnaly,i prefer doing the research at Google which can be faster if you use the right words and gives you similar results as the comparison site.Additionally,i always check websites like eBay and Amazon doing comparisons,offering also new products besides used ones.

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Carlos Ortega
If we think about the shopbot as a device which endeavours to fulfil a need in the society, then we can draw out some useful insights. One of them is precisely the social value of a shopbot, which is closing the gap between the neoclassical world and our real one through information to dispersed and uninformed consumers rather than omniscient…
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If we think about the shopbot as a device which endeavours to fulfil a need in the society, then we can draw out some useful insights. One of them is precisely the social value of a shopbot, which is closing the gap between the neoclassical world and our real one through information to dispersed and uninformed consumers rather than omniscient and savvy agents. Nonetheless, this net effect of welfare relies principally upon 1) how well do shopbots attain their function and 2) how much do they distort the agents’ behaviour by changing the rules of game.

The main function of shopbots is to provide information for people so as to make better decisions. Though, a lot of works have just struck sanguine hopes (Waldeck (2005), Lindsey-Mullikin and Grewal (2006)) since there exist obstacles stemming from consumers’ limited access to shopbots, counterattacking strategies of e-tailers and so forth. Passyn et al (2013) points up the best strategies by online retailers are the related ones with brand loyalty but others are also available and unexploited yet. Smith (2002) argues the shopbots are still in an early phase and they can be more valuable whether other features are employed like customisation. Within this tendency, Garfinkel et al ( 2008) call the new complete shopbot as shopbot 2.0 which integrates a recommendation system whereby overcomes with the muddy transparency of e-tailers to show only biased opinions within own sites.

We can conclude the price dispersion will exist in spite of a more and more adoption of shopbots. Therefore the shopbot fails to close completely this gap between Bertrand perspective and ours. Although more elements ought to be added into the analysis like e-tailers’ strategies and better shopbots for attaining an objective opinion. These are providing better features to consumers and thus an enriched variety. The best outcome in economist’s jargon has not been achieved so far, and maybe never will, but we can reach the second best which is the realistic one.

References:
“Imperfect Information: The Persistence of Price Dispersion on the Web” Lindsey-Mullikin and Grewal
“The impact of shopbots on electronic markets” Smith
“Price Comparison, Price Competition, And The Effects Of ShopBots” Passyn, Diriker and Settle.
“Shopbot 2.0: Integrating recommendations and promotions with comparison shopping” Garfinkel, Gopan, Pathak and Yin.

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Ferté
Because comparison shopping sites gather different products, I think it tends to increase the competitiveness of product markets. As said in the article, it makes consumers “fully informed” of the price of different products. Some consumers will be only interested in finding the lowest price, what they can easily do through these sites. It represents an incentive for firms to…
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Because comparison shopping sites gather different products, I think it tends to increase the competitiveness of product markets. As said in the article, it makes consumers “fully informed” of the price of different products. Some consumers will be only interested in finding the lowest price, what they can easily do through these sites. It represents an incentive for firms to set low prices and it participates to increase the competitiveness of product markets. However, some other consumers do their choices not only based on prices, but according to their preferences (as brand preference). It means that they are less price sensitive. The presence of these two different types of consumers (and the inability to differentiate them from each other) explains why we have price dispersion.

According to Baye and al. (2003), firms are using a “hit and run” pricing which means that they set different prices over time. It allows to prevent systematic exploitation by rivals (always setting a lower price, leading to a “price war”) and also to extract greater surplus from all segments of the market. But does it enhance market efficiency? In my point of view, it does not. The price does not reflect the quality and the value of the product (it is particularly true for heterogeneous products).

I personally believe that comparison shopping sites are mainly visited by consumers looking for low prices. They represent an incentive for firms to diminish their prices, which increase consumers’ surplus and the competitiveness of product markets. However, these sites are not fully transparent, as firms can pay extra fee for priority positioning which can influence consumers’ choices.

Reference:

Baye, M., Morgan, J. & Scholten, P. (2003). Temporal price dispersion: Evidence from an Online Consumer Electronics Market.

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Lefebvre Jean-Christophe
In my view, shopsbots do have an effect on the market. In fact, I totally agree with the article Price Comparison, Price Competition, And The Effects Of ShopBots (Kirsten A. Passyn, Memo Diriker, Robert B. Settle, Journal of Business & Economics Research – September 2013 Volume 11, Number 9). The authors say that there are no real substantial price discrepancies…
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In my view, shopsbots do have an effect on the market.

In fact, I totally agree with the article Price Comparison, Price Competition, And The Effects Of ShopBots (Kirsten A. Passyn, Memo Diriker, Robert B. Settle, Journal of Business & Economics Research – September 2013 Volume 11, Number 9). The authors say that there are no real substantial price discrepancies among online sellers and the differences are more obvious each day because of the increasing number of shopbots. This change in access to information has two major effects.

First, the difference between sellers will become more and more apparent. Thus, the behavior of consumers will be more sensitive to the price. That point leads to more price competition and the discrepancies will decrease. The article says that this decreasing is certain thanks to the increasing number of sources and the gain in experience for the consumers but it will be slow.

Second, even if the number of shopbots and retailers increase, the online shopping suffers from security distrust. That’s why, we observe that the customers continue to buy product on the same website even if a shopbot shows that it’s not the cheapest price. Furthermore, every shop like Fnac has to sell online in order to survive. As the customers can compare the price on the website, they need to lower their price. And, in order to keep the logic, the price in “real shops” has to decrease too.

In conclusion, shopbots increase price competition but it won’t really change the landscape because people keep choosing the dealers in which they trust.

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Rubens Moura
I would like to start by sharing some interesting quotes that I believe fit on this discussion. The first one was extracted from Wall Street Journal (1998) In Smith (2001): “It sounds like a consumer’s dream — and a merchant’s nightmare… Shopping robots are capable of searching for goods on hundreds of Web sites in seconds, putting unprecedented pressure on…
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I would like to start by sharing some interesting quotes that I believe fit on this discussion. The first one was extracted from Wall Street Journal (1998) In Smith (2001): “It sounds like a consumer’s dream — and a merchant’s nightmare… Shopping robots are capable of searching for goods on hundreds of Web sites in seconds, putting unprecedented pressure on Web retailers to beat their competitors’ prices”. The second quote predicts that the creation of shopbots would lead to a “fierce price competition, dwindling product differentiation, and vanishing brand loyalty” (Chen & Sudhir, 2004 In Kuttner, 1998) as they enable consumer to have access through a simple click to most of the prices set by sellers worldwide.
In sum, it is a conclusion of both studies that search engines have contribute greatly to reduce drastically searching costs and asymmetric information (especially among buyers) of markets, considered as indispensable elements crucial to enhance market efficiency in traditional microeconomic theory. However, there would not be a win-win solution as the profitability of the firms could be significantly impacted – and this is exactly what is expected when firms set their strategic decisions in a non-cooperative way (Chen & Sudhir, 2004).
Adding extra considerations to the debate can modify the mentioned conclusions, though.

One could expect that consumers may still opt to remain loyal to the dominant firms as it is reasonable to suppose that those companies may enjoy better reputation for services provided than smaller firms. In this context, dominant firms may still assess as an optimal strategy to cooperate with other giants and decide to still change above their above marginal cost (Smith, 2001).
The question of loyalty is also in the core of argument exposed in the model elaborated by Chen and Sudhir (2004). According to the authors, the reduction on searching costs enhances firms to better separate the loyal consumers (those who will decide to not search for the best price and will continue to buy from the same firm) from the others who are only interested in lower prices and that have a more elastic demand. Under these circumstances, firms would be better able to set a price discriminate policy for both types of consumer, charging a higher price for the first group. Thus, the drawbacks associated with the increase in the competition as result of a more price transparent scheme might be more than offset by the higher mark-up that firms would be able to set from the loyal consumers.

References:
http://www.heinz.cmu.edu/~mds/isem.pdf
http://faculty.som.yale.edu/ksudhir/papers/Search-2.pdf

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McFly
To answer this question we must try to understand how shopbots affect search costs and price dispersion. Shopbots are intermediaries, which help connect the demand and the supply side of the market. Although Internet and search engines such as Google have greatly lowered the search costs incurred by consumers, we still live in a world of imperfect information. Some users…
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To answer this question we must try to understand how shopbots affect search costs and price dispersion.

Shopbots are intermediaries, which help connect the demand and the supply side of the market. Although Internet and search engines such as Google have greatly lowered the search costs incurred by consumers, we still live in a world of imperfect information. Some users are therefore uninformed while others, thanks to their low search costs, are informed and can beneficiate from that by buying a product at a lower price than the former group. In this environment, how do shopbots influence market efficiency? Since shopbots usually ask for a fee to the retailers while offering access to their website for free to the consumers, they should favor the demand side of the market by letting users pick the best deals. The reality is a bit different, as shopbots need to make a profit. In some cases they will be better off charging a high fee to the retailers, preventing some smaller firms the possibility to join their website. This will in turn create price dispersion, which is beneficial for consumers. This will happen if the online price for a particular homogeneous product is identical across all websites. In this case the market allocation is not efficient because prices exceed marginal costs. On the other hand, when online retailers can charge different prices across various websites, the shopbot will be pushed to accommodate all the players, which would create an efficient market allocation.

Now, because the system of fees that shopbots ask from retailers is a lot more complicated than a simple flat fee, it is difficult to access whether they have increased or lowered the competitiveness of product markets.
One could argue that by letting online retailers buy their way to the top of the list in the shopbots results and exclude some retailers, they have ironically narrowed the buyer’s options rather than widen them. The main users of shopbots are previously uninformed consumers but they are also the most easily swayed. This means that these consumers will only see the products/prices for the retailers that are listed by the shopbots, which has potentially denied access to other firms in order to maximize its own profit as we have seen earlier. In the end those users are only partially more informed and the question is therefore, how big is the percentage of non-listed retailers. Because we assume that uninformed customer will randomly buy from any retailer. The bigger the number of non-listed firms, the less the users of those shopbots are actually being properly informed.

The problem of shopbots is the trust that consumers put in them thinking that they actually do register all retailers without promoting any of them in particular.

But it would be unfair to disregard them as they do inform previously uninformed consumers, even if not giving them all the information available.

In the end, I believe that shopbots increase the competitiveness between big companies while reducing the competitiveness between big and small firms. This might result in a market with a smaller number of online retailers, those which will have been investing in shopbots.
As for “How can such a business model be economically viable?”, it seems that Cost-per-Click is the best way to go as it has proved itself in the more general domain of search engines. As for digital advertising, it is a double edge-sword, as consumers might be reluctant to search for the best prices on a website advertising particular vendors while it is supposed to be objective (or at least that’s what users want to believe).

If shopbots would list all online retailers, we would see an increase in competitiveness. The result would be a market efficiency. As it can be interpreted, I am however doubtful that it is or will be the case.

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Sommeville Benjamin
Internet shopbots are automated tools that allow customers to easily search for prices and product characteristics from online retailers. In this view, shopbots will radically reduce consumer search costs, reduce retailer opportunities to differentiate their products, and as a result will theoretically drive retailer margins toward zero. However, as it is suggested above, while shopbots may place pressure on retailer…
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Internet shopbots are automated tools that allow customers to easily search for prices and product characteristics from online retailers. In this view, shopbots will radically reduce consumer search costs, reduce retailer opportunities to differentiate their products, and as a result will theoretically drive retailer margins toward zero.

However, as it is suggested above, while shopbots may place pressure on retailer margins in some circumstances, retailers retain numerous opportunities to differentiate their products, leverage brand names, set strategic prices (for instance temporal price dispersion), and reduce the effectiveness of consumer search at shopbots.

So in my opinion, the efficiency of Shopbots depends mainly on differentiation among the products of the retailers as well as their ability to price discriminate between informed and uninformed consumers. In one hand, if products are homogeneous and require not much information for consumers, I think that Shopbots increase the competitiveness of product markets, drive margins toward zero and enhance market efficiency. In the other hand, if products are heterogeneous, firms can use strategies as explained above to price discriminate and therefore, Shopbot does not increase the competitiveness.

http://revel.unice.fr/eriep/?id=3212#tocto1n4
http://www.heinz.cmu.edu/~mds/isem.pdf

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NT
Shopbots can increase competition in product markets as consumers have access to clear comparison of prices between retailers. Increased information creates "informed consumers" which, in equilibrium, means they will search for the most competitive, usually lowest, price. Retailers in turn, must satisfy consumer preferences and compete with each other to supply their homogeneous goods at the lowest price. According to…
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Shopbots can increase competition in product markets as consumers have access to clear comparison of prices between retailers. Increased information creates “informed consumers” which, in equilibrium, means they will search for the most competitive, usually lowest, price. Retailers in turn, must satisfy consumer preferences and compete with each other to supply their homogeneous goods at the lowest price. According to Baye & Morgan:
‘The level of activity in the market for information directly impacts the competitiveness of the product market, and this in turn affects the willingness of consumers and firms to participate’.
Consumers look for the lowest price, suggesting that demand is infinitely price-elastic. Also, if retailers supply homogeneous goods e.g. in a two-firm economy, Bertrand’s paradox prevails in that consumers will solely base their choice on price comparison, but in fact due to the Nash equilibrium, both firms will set their price equal to marginal cost. For larger economies, temporal price dispersion exists i.e. firms setting randomised prices over time, which induces partial, not full firm participation.
Shopbots can maximise profits when the fees charged for consumer access are set low enough to induce all consumers to subscribe i.e. zero-price provision. It pays off for shopbots to have increased consumer participation as this increases firms’ incentives to attempt to acquire users by offering the lowest price. This in turn implies that, despite the fact that total surplus is maximized by inducing competitive pricing in the product market, the free riding by consumers ensures that this is never profit maximizing for the gatekeeper.
It can be said that intermediary price comparison sites, or shopbots, enhance market efficiency. Efficiency in a market requires prices to reflect all available information. Shopbots provide information to consumers, mostly on a zero-cost basis, thus reducing asymmetries of information and market failure. Consumers benefit as they become “informed consumers”, and can find the lowest price through comparison. Shopbots apparently provide consumers with full transparency of prices, which would enhance market efficiency. If firms know they will be compared to their competitors when signing up for these sites, they may be more willing to let the prices be set by the market and its forces i.e. in perfect competition. However, informational biases can occur which would make the market less efficient e.g. many shopbots can only provide information on the prices of the firms which have paid them to advertise. In that case, even the informed consumers may be less informed than they think they are.
For these websites to be sustainable, they should encourage more users on supply side to reduce the informational bias, inducing competition and efficiency in the market.

Sources: Baye & Morgan, 2001 http://www.rchss.sinica.edu.tw/cibs/pdf/BayeMorgan.pdf
Bertrand’s Paradox, http://en.wikipedia.org/wiki/Bertrand_paradox_(economics)

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Ben
From my own point of view, comparison shopping sites are very useful to help the market to reach efficiency. Indeed, that kind of websites provide better information for the consumers about the product they are looking for. Thus, the consumer can make his choice knowing all the details and the substitutes. But this process also offer to the firms information…
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From my own point of view, comparison shopping sites are very useful to help the market to reach efficiency. Indeed, that kind of websites provide better information for the consumers about the product they are looking for. Thus, the consumer can make his choice knowing all the details and the substitutes. But this process also offer to the firms information about the preferences and can help them to take the good strategic decisions. Everyone can thus benefit from better informations and the equilibrium reach easier the optimum.
Nevertheless, the fees that the shopping sites impute to the buyers and sellers could operate as a tax and create a dead loss for the market. These fees also prevent low range products to be present on the shopping sites market and to compete with others because their advantage comes from their lower prices, which increase due to the fees. This act as an obstacle to the competition, which is not good for the efficiency of the market.
To summarise, we can say that the shopping sites increase the competition and thus improve the efficiency regarding the high range products, but they have bad effects for the low range products.
Concerning the survival of the shopping sites in the long run, I think that the system need a change in the consumers’ behaviour. Most people are still careful and don’t want to buy products by using internet. They use the shopping sites to access the information and know which product is the better one for them and then they go to the shop to buy it. This could be the case of clothes, that people are less convenient to buy online and prefer to try before. In this way, firms couldn’t see the benefit of the advertising that provides the shopping site and could decide to avoid it. But this trend evolves over time and is called to disappear. But that can be useful to take this fact into account for the shopping sites to decide what kind of fees must be applied (cost-per-click, execution of transaction, etc.).

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François Tamigneaux
According to the literature, the advent of the internet should increase customers’ market power on electronic markets. The shopbots development gave many reasons to believe in those tools enabling customers to be better informed of market prices. However, they might not be as fully efficient as we would like to think. As already explained, shopbots aims at providing to customers as…
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According to the literature, the advent of the internet should increase customers’ market power on electronic markets. The shopbots development gave many reasons to believe in those tools enabling customers to be better informed of market prices. However, they might not be as fully efficient as we would like to think.

As already explained, shopbots aims at providing to customers as much information as possible in order to compare products sold by different vendors. Thus, it seems logical to think that shopbots will ensure a maximal representation of markets. However, if information bias would be avoided through a full-coverage strategy (1), the latter would also create inefficiency (2). Indeed, information overload would lead to increase search costs to customers and development costs to shopbots. Therefore, in order to better balance their profits with regard to their services, a sample-vendor strategy could be more efficient. This means that asymmetry of information is not solved as customers are not fully informed.
Furthermore, customers will have to ability to quickly compare many product offerings and prices. Nevertheless, information provided by shopbots are mainly quantitative. Thus, the lack of specific product characteristics (e.g. service quality, branding, etc.) might be crucial in the customers’ decision-making process even though they are very price sensitive (3). Indeed, this may lead consumers to offset missing information by making purchases based on previous experience or trust in brands. Therefore, the increase competitiveness in those markets is limited as customers do not only value price.

However, the impact of shopbots may depend on the type of products it is comparing. Homogeneous goods present characteristics that are easily comparable and their purchased are mainly dependent on their price. As Tang et al. (2007) have demonstrated for the online book industry, a 1 percent increase of shopbots usage reduces of $0.41 price levels of books. In this context, it proves the increasing competitiveness on the market due to shopbots. Therefore, it might have a different impact depending on the complexity of products.

(1) Datta, P., & Chatterjee, S. (2008). The economics and psychology of consumer trust in intermediaries in electronic markets: the EM-trust framework. European Journal of Information Systems. Vol 17(1). Pp. 12-28.
(2) Öörni, A. (2003). Consumer search in electronic markets: an experimental analysis of travel services. European Journal of Information Systems. Vol 12(1). Pp. 30-40.
(3) Smith, M.D. (2002). The impact of shopbots on electronic markets. Journal of the Academy of Marketing Science. Vol 30 (4). Pp. 442-450.
Gove, A., & Jianan, W. (2010). How well do shopbots represent online markets? A study of shopbots’ vendor coverage strategy. European Journal of Information Systems. vol 19(1). pp. 257-272.
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.

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Stroobants Benoit
The Market structure is and always will be a complex analyse which were reviewed many times over the past decades. As we can notice, on the one hand, "uninformed" consumers are subject to searching costs due to their ignorance about the prizes and so, have to pay higher price contracting by stores. On the other hand, "informed" consumers who have…
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The Market structure is and always will be a complex analyse which were reviewed many times over the past decades. As we can notice, on the one hand, “uninformed” consumers are subject to searching costs due to their ignorance about the prizes and so, have to pay higher price contracting by stores. On the other hand, “informed” consumers who have all the information they need to bargain (don’t have to face to searching costs), thus will pay products and services at a competitive price. In this case, It’s seems obvious that the arrival of shopbots on the online market can improve this prices discrimination and, consequently, competitiveness and market efficiency, by making affordable prices for informed consumers and consumers “in the dark”.

Beside this, we have to be cautious that shopbots takes only into account the price of each similar product for comparison while consumers rely on a multitude of other factors to consider, such as the brand, the quality of the product, the source of goods, the texture,…In this way, they are able to make the best choice by weighting the pros and cons of each factor. For instance, think about a shopbots which compare different prices to book a flight; such as JetCost.com, Skyscanner.com,… These shopbots will give you the price range for most flight between one destination and an other and then, you’ll be able to make a choice. But this choice won’t take into account the service’s quality on board, the meals you can order, if the company is black listed or not, special offers from tour operator…that some consumers are concerned.

Furthermore, we have to notice that the notoriety of a brand and the devotion that people have for a particular brand highly influence their final choice. Therefore, compared to an unknown branded product, a customer often prefers opting for the security buy choosing a well known product or that he used to buy. It will depend on the level of risk aversion of each consumer.

As far as I am concerned, I would say that in some extent, Shopbots increase the competitiveness of product markets and enhance market efficiency but a price dispersion still remains depending on the criteria of each client, no matter what you are looking for.

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Cristian Gresuk
It is my belief that shopbots do actually increase the market competition: since the model followed by most of them relies on charging the sellers, and making the web page free for the users, any other uninformed user can become an informed one, free of charge, and within this new surge of information, not only prices play a part on…
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It is my belief that shopbots do actually increase the market competition: since the model followed by most of them relies on charging the sellers, and making the web page free for the users, any other uninformed user can become an informed one, free of charge, and within this new surge of information, not only prices play a part on the final and ultimate decision.
The concept of price dispertion will continue to be central to this line of business, since there are many key factors at play: not only is there a demand for the cheapest offer out there, but the ultimate decission on behalf of the user also relies on the confidence it has on the seller, on wether the overall price includes taxes, shipping costs (if there were any) and other factors that will result in choosing an option that might not be the cheapest.
On this line of thought, if a big company were to put a price above average, they would still get great demand b their loyal clients or by users that only rely on this big company. But this also allows for smaller companies to compete for lower prices, and better deals. It might also be the case that, provided every user is informed, some companies really have no competitive advantage on the market and thus will be forced to shut down in light of all the people having the option to choose a better deal.
It is interesting to see as well that, as shown on this paper http://www.utdallas.edu/~murthi/Papersubs/Zhang_Jing.pdf , contrary to common sense, instead of diminishing the amount of searches due to the fact that shopbots show all the main information, the actual result is that “consumers are actually visiting more online retailer web sites after using shopbots”. Why? Because after having selected the best price, or best seller, or best option on the shopbot, most people dig deeper onto the actual seller’s webpage where they will find further details about their product or service needed, and most of them end up buying the latter on the seller’s webpage. This, in turn, means the shopbot will not be able to earn a profit out of the transaction itself. And the other big implication of this result is the fact that the first impression made on the shopbot’s page, is the most important one for the seller, since that will open the door for the user to go into the seller’s webpage and actually be more informed about all their offers. This again will result in an upraisal of market competitiveness.

I believe the most effective way to monetize this business is indeed through the pay per click system,probably adding a plus for every effective sale carried on, but as we’ve stated before,not all sales are actually carried on through the shopbot’s page, and thus the PPC (pay-per-click) system is the solution to this issue. Promoted companies, and ads on these web pages are also additional sources of income that should be set as default for every shopbot.

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d tm
I would disagree with the statement that price transparency has a downward effect on prices. I actually think that is a very dangerous assumption to make. If we take a look at the factors that may sustain and facilitate collusion or tacit collusion, price transparency is actually one with theoretical foundations and empirical evidences. This is so because transparency allows firms…
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I would disagree with the statement that price transparency has a downward effect on prices. I actually think that is a very dangerous assumption to make.

If we take a look at the factors that may sustain and facilitate collusion or tacit collusion, price transparency is actually one with theoretical foundations and empirical evidences. This is so because transparency allows firms to know whether rivals are committed to the collusive or tacitly collusive price, making it easier to punish in the case it a rival is deviating. As a result, each firm is can be more confidant that others will not deviate and its interest to deviate is also dwindled. Moreover, in the absence of transparency, firms would have to incur in significant costs to monitor its rivals and some degree of communication between rivals may be needed. Thus, transparency not only decreases those costs of colluding or tacitly colluding as well as decreases suspicions for anti-trust authorities by lowering the needed communication between rivals.

For a concrete empirical evidence of this effect the paper by Albaek et al. (1997) is a main cornerstone. In the 90s’ Danish producers of ready-mixed concrete were suspected of being colluding. The market was composed by of 115 production sites shipping their product locally. The Danish Competition Council decided to act against it increasing transparency, by collecting data on prices and publishing it on a quarterly basis. After this increased transparency prices skyrocket, leading the Danish Competition Council to stop the publication after December 1995.

A similar effect happened in Portugal with the exposition of the main gas companies’ prices in special panels. According to a report by the Portuguese Competition Authority, the introduction of these panels and subsequent increase in transparency caused an increase in prices.

Search engines and price comparators are certainly increasing transparency allowing this effect to take place, so I am very reluctant about its positive welfare effects.

References:
-Albaek, Svend, Peter Møllgaard, and Per B. Overgaard. “Government‐Assisted Oligopoly Coordination? A Concrete Case.” The Journal of Industrial Economics 45.4 (1997): 429-443.
-Autoridade da Concorrência, “Análise do impacto da introdução dos painéis de preços dos combustíveis nas auto-estradas”, 24 de julho de 2012 (Portuguese)

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De Tollenaere Jonathan
I personally think that the informations that you can find on a Shopbot is very useful for consumers but can reduce the profit of some sellers. Indeed, this websites offer the possibility to compare, for a same item, between all the sellers, especially about prices differences. In my opinion, the Shopbots help the market to be more efficient because the companies have…
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I personally think that the informations that you can find on a Shopbot is very useful for consumers but can reduce the profit of some sellers.
Indeed, this websites offer the possibility to compare, for a same item, between all the sellers, especially about prices differences.

In my opinion, the Shopbots help the market to be more efficient because the companies have to adapt their prices in a competion market with less “uninformed” consumers than before.
Many consumers are now “informed” because there are no cost to search this informations (thanks to the Shopbots).

I also think that some sellers can place a higher price than an another seller, because of his reputation.
For example, if you are comparing the price for a product and you see a difference of price between two sellers : The first is a well-known seller and the other is a new one.
Even if the price is higher, you’ll probably order on the well-known website because you are afraid to be swindle on Internet.

That’s why, I think that Shopbots make the market more efficient but it will still prices differences. The price dispersion will persist for different reasons (reputation, quality of after sales department, transaction security,…).

About “How can such a business model be economically viable?”, I think that digital advertising is a good source of revenues for a Shopbot, but also the CPC (Cost-per-click). So, it stills free for the consumers and the search costs stay null.

If the sellers want to be seen in the results, he has also to agree to pay for a good ranking in the search results.
I think that this business model is economically viable thanks to this fees.

References :

Kephart J. O., & Greenwald A. R. (2002), Shopbot Economics, Game Theory and Decision Theory in Agent-Based Systems, 119-158.

Markopoulos P., & Kephart J. O., How valuable are Shopbots ?, http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.6.5719&rep=rep1&type=pdf.

Brynjolfsson E., & Smith M. D., (2001), The great equalizer? Consumer choice at internet shopbots, Working paper.

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Xinyu Li
To answer this question, I’d like to start with the demand side and the supply side. The demand side: some shopbot customers appear to be very price-sensitive according to some research by Ellison and Ellison (2001). However, brand and loyalty are still important factors driving customer choice. Putting aside brand loyalty, brand is used by customer as a proxy for non-contractible…
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To answer this question, I’d like to start with the demand side and the supply side.
The demand side: some shopbot customers appear to be very price-sensitive according to some research by Ellison and Ellison (2001). However, brand and loyalty are still important factors driving customer choice. Putting aside brand loyalty, brand is used by customer as a proxy for non-contractible aspects. For example, customers may expect standard shipping policy from one certain brand. As a result, the existence of shopbots is not able to eliminate all the price differences since famous and reliable brands have the power to charge higher prices over customers.
The supply side: many researchers believe that the existence of shopbots will increase pressure on margins, which means lower prices. This has been proved in the term life insurance market, the price reduced by 8-15 percent while prices for whole life insurance polices, which are not tracked by shopbots. Other findings, such as Brown and Goolsbee, shopbot services lead to more price dispersion. Shopbots will provide their customers with low-price retailers while some retailers may charge high prices for loyal customers. Some findings even show that there is a bait-and switch strategies played by retailers shown in the list of shopbots. Those findings happen to coincide the same consequence, the existence of shopbots does not mean lower prices.
In order to make profits, shopbots will try to get as much as customers as well as to keep price dispersion. If all retailers join shopbots, competition would drive prices to marginal costs, which limit their own profits.
As far as I’m concerned, in the real world situation, most retailers online cannot perform price discrimination. In the case where there is no possibility performing price discrimination, the competiveness is strongly related to the participation rate of retailers engaging themselves in shopbots. The competiveness is softened when not all retailers use the shopbot. In this situation, there’s a great chance to form a U-shaped distribution of prices where retailers charging high prices from uninformed customers while retailers maximizing sales by charging low prices from informed customers. The market efficiency is not enhanced with the existence of shopbots, because it does not eliminate price difference and monopoly prices.
When all retailers are using shopbots, competitiveness is increased. The market efficiency is enhanced in this situation, since price difference is eliminated by shopbots, which reduce the searching costs of consumers.
reference: http://www.heinz.cmu.edu/~mds/isem.pdf Michael D. Smith, 2002

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Alexandre Faber
Many a clever man has greeted the penetration of e-commerce for its alleged virtues to discipline firms. E-commerce has drastically reduced the perceived distance to suppliers thus lowering the geographic limits of the market. In addition the platform on which e-business relies, i.e. the internet, has rendered relevant market data (product characteristics, prices, guaranties, terms of use, etc.) easily accessible…
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Many a clever man has greeted the penetration of e-commerce for its alleged virtues to discipline firms. E-commerce has drastically reduced the perceived distance to suppliers thus lowering the geographic limits of the market. In addition the platform on which e-business relies, i.e. the internet, has rendered relevant market data (product characteristics, prices, guaranties, terms of use, etc.) easily accessible to market actors thus reducing search costs. In a static framework it seems realistic to assume that, other things being equal, increased transparency would help consumers make an informed choice by increasing their awareness of alternative suppliers, reducing lock in to particular firms and thus market power, and facilitating comparison of products, thereby reducing mismatch. These are also the grounds on which consumer protection groups usually advocate for more transparency. In light of the above, price-comparison sites seem like a welcome phenomenon, all the more since they are market-based solutions that didn’t require any sort of consumer rights intervention in order to emerge.

But should they be celebrated, really? In my opinion, not necessarily. This is so for at least two reasons: (1) some aspects of the e-marketplace compromise the disciplining effect of transparency (especially the existence of switching costs and potential security & delivery risks so that consumers are willing to pay a premium for popular brands) or facilitate obfuscation rather than clarification (e.g. price discrimination practices and frequent price-variations are more commonly encountered in e-commerce); (2) increases in price transparency facilitate collusion.

With regards to (1): E-commerce introduces a number of possibilities for switching costs (see Belleflamme and Peitz 2010: 167-168 for a switching costs typology). For instance one will usually need to learn how to use the website-interface (so-called learning costs), and placing an order might require the creation of a client account and the provision of personal information while the whole process might only require “one click” with one’s current supplier (so-called transaction costs). As expected from the above, Johnson, et al. (2003) show that the time required by consumers to complete a transaction falls with repeat purchases. Switching costs are higher still because of uncertainty costs. In e-commerce trust is more important than ever. Actors meet on a virtual marketplace; they cannot see the party with which they are potentially going to engage with and they can’t take a look at the desired product before delivery. A series of scandals revolving around leakages of customer information that resulted in cybertheft have further damaged the image of e-commerce, affecting relatively less known companies more than the big players.

High switching costs of the sort favour settled companies more than entrants because of the asymmetry in customer bases. Incumbents can put a premium on entrants’ prices without losing their customers to entrants for as long as the premium reflects the switching costs (i.e. by adopting a limit-pricing-like strategy). As a result, customers are disposed to continue to patronise their current supplier and at least some degree of market power is retained. Smith, M. and E. Brynjolfsson (2001) find that consumers tend not to buy from the cheapest company listed on price-comparison sites, thus providing empirical evidence for the above argument.

Secondly, firms might want to counter an increase in transparency by artificially reintroducing obscurity (for a formal analysis see Ellison and Wolitzky, 2012; see Ellison and Ellison, 2009 for an empirical study). There are a number of ways by which a firm could make that happen. To name but a few: rendering prices more complex (e.g. through random pricing, frequent revisions of prices, price discrimination, product differentiation, etc.), quoting prices in a way as to sabotage the algorithm’s construction thereby inducing it to produce misleading price-comparison results, etc. As a consequence price-comparison websites might have a hard time producing meaningful comparisons: e.g. are we still comparing the same products or are they only similar and what are the differences? Are the quoted prices including taxes or not?

With regards to (2): price-comparison websites facilitate collusion because they increase price transparency. The validity of the argument is supported by the natural experiment that was accidentally conducted by the Danish Competition Authority in the early 1990s. The authority found that there was a lack of competition in the ready-mixed concrete market. In an attempt to promote competition, the authority launched a price-monitoring programme and prices prompted up by 15-20% (see Albaek et al., 1996). By giving the affected companies access to realtime price monitoring such price-comparison services effectively decrease the period of defection that would go unnoticed and prompt “punishment” (in fact one could design automatic price adjustments that would punish instantly). In addition, firms are no longer required to engage in inter-firm price-information sharing that would otherwise produce factual evidence and thus increase the risk of being caught by antitrust authorities. In effect, transparency stabilises collusion.

Note however that it is not clear to what extent such price comparison sites have increased transparency from a firm’s perspective. In some e-markets it seems perfectly possible to set up a private monitoring algorithm that monitors competitor’s prices. This is especially so with companies which are mostly internet-based, like Amazon, because prices must then by nature be quoted online.

A somewhat related service that has recently come under scrutiny by antitrust authorities (for instance by the OFT in the UK and the Bundeskartellamt in Germany) is the one of online hotel booking portals (like booking.com, expedia, etc.). In both the British and the German investigation, the central problem was that freedom of pricing (on both the hotel- and intermediaries-level) was severely hampered through vertical agreements between hotel chains and booking intermediaries to ensure rate parity thereby stifling competition on the intermediaries’ commissions and between the different booking channels (intermediaries, the hotel’s online, telephone and on-site pricing schemes, all-inclusive packages offered by travel agencies, etc.).

References:
Albaek, Svend, Peter Mollgaard and Per Baltzer Overgaard (1996): ‘Law-assisted collusion? The Transparency Principle in the Danish Competition Act,’ European Competition Law Review, 17, 339-343.
Belleflamme, Paul and Martin Peitz (2010): Industrial Organization: Markets and Strategies, Cambridge University Press.
Ellison, Glenn and Alexander Wolitzky (2012): ‘A search cost model of obfuscation,’ RAND Journal of Economics, 43(3), 417–441.
Ellison, Glenn and Sara Fisher Ellison (2009): ‘Search, Obfuscation, and Price Elasticities on the Internet,’ Econometrica, 77(2), 427-452.
Johnson, E., S. Bellman, and G. Lohse (2003): ‘Cognitive Lock-In and the Power Law of Practice,’ Journal of Marketing, 67(2), 62–75.
Smith, M. and E. Brynjolfsson (2001): ‘Consumer Decisions-Making at an Internet Shopbot: Brand Still Matters,’ Journal of Industrial Economics, 49(4), 541–565.

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de Schrynmakers Raphaël
If we base our analysis on the premise that when consumers are subjected to searching costs, companies charge at monopoly price and that when costumers don't face searching costs, companies charge at a competitive price, we can deduce that shopbots enhance competitiveness and market efficiency. Indeed, as practically everyone who would supposedly buy on the platforms has an internet connection,…
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If we base our analysis on the premise that when consumers are subjected to searching costs, companies charge at monopoly price and that when costumers don’t face searching costs, companies charge at a competitive price, we can deduce that shopbots enhance competitiveness and market efficiency. Indeed, as practically everyone who would supposedly buy on the platforms has an internet connection, there are no searching costs. From there on, the market should be competitive and efficient. The only reason with which a company could justify a higher price is that fact of product superiority. However we see that in reality the market isn’t totally efficient. So why is that?

First of all, lots of people still don’t buy on the internet because they still have need for physical analyse of the products. Even if the internet gets closer and closer to reality, it still isn’t close enough. Colors aren’t exactly the same; You can’t really estimate sizes or try if they fit; some textures don’t look the same on picture as they do in reality, and so on.

However, a review of the literature suggests that, while shopbots may place pressure on retailer margins in some circumstances, retailers retain numerous opportunities to differentiate their products, leverage brand names, set strategic prices, and reduce the effectiveness of consumer search at showboats.

http://repository.cmu.edu/cgi/viewcontent.cgi?article=1052&context=heinzworks

Moreover shopbots aren’t used by everyone buying on the internet. Some people know exactly what they want or are used to a certain buying style. Let’s say some people are loyal to a particular brand which will make them incline to buy from that particular brand even if it is more expensive.

In particular, we find that consumers use brand as a proxy for retailer credibility in non-contractible aspects of the product and service bundle, such as shipping reliability.

http://onlinelibrary.wiley.com/doi/10.1111/1467-6451.00162/abstract?deniedAccessCustomisedMessage=&userIsAuthenticated=false

Finally, as said in the article mentioned in the text, in some situations shopbots discriminate a certain type of sellers which creates an inefficient market situation.

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Matthieu
Shopbot: an empirical evidence: (http://revel.unice.fr/eriep/?id=3212#tocto1n4) They use data collected from DealTime.com. And they want to analyze the choices made by the consumers when they use on a shopbot. They analyze the consumers' response from the price, the brand, the shipping etc. One result is the following: "most customers greatly prefer well-known brand even if the total price is higher". They trust…
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Shopbot: an empirical evidence: (http://revel.unice.fr/eriep/?id=3212#tocto1n4)

They use data collected from DealTime.com. And they want to analyze the choices made by the consumers when they use on a shopbot. They analyze the consumers’ response from the price, the brand, the shipping etc.

One result is the following: “most customers greatly prefer well-known brand even if the total price is higher”. They trust more the well-known brand, because these brands give more credibility.

Moreover, “customers appear to be more sensitive to changes in sales tax and shipping cost than they are to changes in the item price, even when the total price they must pay remain unaffected” and “consumers who search more intensively are less-price sensitive than other consumers”. So we can expect that the shopbots do not increase the competitiveness of product market due to the fact that consumers are not only interested by the price. So, price dispersion will persist in such kind of market.

We can conclude that the competition in such kind of market is not à la Betrand, because the consumers value other characteristics than the price, so there is no evidence that the shopbots will increase the competitiveness of the market.

Their results lead also to a kind of freemium model: firms tend to attract consumers with a low quality product at a very low price (can be below the marginal cost), and after, the firm try to convince customers to “pay extra to get the product they really wanted in the first place”. With such strategy, it seems that the shopbots may be a barrier to the efficiency.

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