Comparison Sites ∗

Abstract

Web search technologies are fundamental tools to easily navigate through the huge amount of information available in the Internet. One particular type of search technologies are the socalled shopbots, or comparison sites. The emergence of Internet shopbots and their implications for price competition and market efficiency are the focus of this paper. We develop a simple model where a price comparison site tries to attract (possibly vertically and horizontally differentiated) online retailers on the one hand, and consumers on the other hand. The analysis of the model reveals that differentiation among the products of the retailers as well as their ability to price discriminate between onand off-comparison-site consumers play a critical role. When products are homogeneous, if online retailers cannot charge different onand off-the-comparisonsite prices, then the comparison site has incentives to charge fees so high that some firms are excluded, which generates price dispersion and an inefficient outcome. By contrast, when onand off-comparison-site prices can be different, the comparison site attracts all the players to the platform and the allocation is efficient. A similar result obtains when products are horizontally differentiated. In that case, the comparison site becomes an aggregator of product information and no matter whether firms can price discriminate or not, the comparison site attracts all the players to the platform and an efficient outcome ensues. We argue that the lack of vertical product differentiation may also be critical for this efficiency result. In fact, we show that when quality differences are large, the comparison site may find it profitable to charge fees such that low quality producers are excluded, thereby inducing an inefficient outcome. ∗We thank Martin Peitz and Joel Waldfogel for their useful comments. Financial support from Marie Curie Excellence Grant MEXT-CT-2006-042471 is gratefully acknowledged. †ICREA, IESE Business School and University of Groningen, E-mail: jose.l.moraga@gmail.com. ‡Kelley School of Business, Indiana University, E-mail: mwildenb@indiana.edu.

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Cite this paper

@inproceedings{MoragaGonzlez2011ComparisonS, title={Comparison Sites ∗}, author={Jos{\'e} L. Moraga-Gonz{\'a}lez and Matthijs R. Wildenbeest}, year={2011} }