Platform search design with heterogeneous consumers

Abstract

Abstract Digital platforms facilitate interactions between buyers and sellers. This study examines intermediary shopping platforms’ strategic search designs and their effects by incorporating consumer behaviors. Some consumers, often referred to as “naïve,” possess limited expertise in evaluating a product’s value. We find that when confronted with higher search costs, naïve consumers tend to assess fewer products and limit the depth of their evaluations. The relationship between market prices and consumer naïvety is non-monotonic and hinges on the disparity in search costs between naïve and sophisticated consumers. Thus, platforms encounter a trade-off between reducing search costs to encourage naïve consumers to explore goods more extensively and avoiding excessive reduction to prevent sophisticated consumers from evaluating too many products. Using data from a prominent e-commerce platform, we also empirically substantiate the observation that sophisticated consumers tend to engage in more comprehensive product evaluations.