Price or Proficiency? A Household Production Explanation on Consumers’ Choice                     of Online Retailer

Feng (Oliver) Liu
(College of Business Administration, California State University-Sacramento, 6000 J Street, Sacramento, CA 95819, USA)

Abstract: The availability of online comparison shopping services, such as Google shopper, enables consumers to easily compare a large number of retailers on price and other features. Online retailers therefore need to understand whether the establishment of relationships with customers as a means of generating purchases is comparably effective as is the lowest-pricing strategy. This is the issue we investigate in our study. Specifically, we examine whether and why online consumers return to retailers they bought from in the past rather than relying on comparison services. We draw on the Household Production framework to propose a discrete choice model for our empirical investigation and calibrateit using data from a survey of online shoppers. We take a Bayesian approach and use the hybrid Metropolis-Hastings within Gibbs MCMC sampler to calibrate the model. Our results are consistent with our theoretically derived expectation that other types of costs, and not just monetary ones, do play a role in how consumers select online retailers.

Key words: human capital; discrete choice modeling; E-retailing

JEL code: M31