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Internet Comparison Sites

Internet Comparison Sites. 27 June 2011 - London Harriet C. Gamper Civic Consulting. Theory v. Reality. IDEAL ‘Frictionless comparison’ ICS differentiate on quality aspects as well as price Effective screening means best options are oversampled Feedback mechanism (experience goods)

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Internet Comparison Sites

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  1. Internet Comparison Sites 27 June 2011 - London Harriet C. Gamper Civic Consulting

  2. Theory v. Reality IDEAL • ‘Frictionless comparison’ • ICS differentiate on quality aspects as well as price • Effective screening means best options are oversampled • Feedback mechanism (experience goods) • Consumers are able to cut through the excess of information to find a suitable product REALITY • Too much information and choice – consumers cannot make an informed decision • Large overlap between users of the 4 most visited UK ICS (Mintel) • Consumers search on ICS then purchase direct from the retailer

  3. Consumer distrust • Perception that suppliers do not cover the whole market • ICS are not impartial – rankings are influenced by commission bias • Comparisons are not like for like

  4. Two-sided platforms Consumers Service is free ICS find a valuable match between the two Traders Pay commission Underlying economics • Funding: • Advertising • Sale of data • Commissions: • Pay-per-click • Pay-per-action

  5. A paradoxical business model • Seller-side paradox • Decision to affiliate intensifies pricing rivalry on the platform • Buyer-side paradox • No price dispersion and so no longer a reason to consult ICS at all – consumers go straight to retailer (Ellison and Ellison) Conclusions: • Market coverage is only partial • Price dispersion will persist The two-sided business model is flawed

  6. What does this mean for consumers? • Two-sided ICSs argue that they are impartial: • “Proud to be an independent company providing impartial and unbiased comparison” • Do ICSs actually work? • To find out, consumers would have to research the market themselves • ′Satisficing′/bounded rationality • Waste of time • ′Shopping around′ amounts to an ineffective remedy

  7. Trader obfuscation • Blocking of shopping agents • PriceRunner Website – ‘What makes PriceRunner different?’ “PriceRunner also includes hundreds of online AND high street stores you won't find anywhere else. Some of them simply can't afford to advertise - despite offering some cracking deals. And others would rather you didn't know how uncompetitive their prices (including those all-important ‘hidden extras') really are. We list them anyway!” (http://www.pricerunner.co.uk/user-guide/impartiality.html) • Refusal to be listed – eg Direct Line • http://www.youtube.com/watch?v=T1CYDQG9RIs • Price obfuscation • Bait/headline pricing • Tariff chaos – changing prices/tariffs too frequently • Conclusion – the release of complete and up-to-date information is crucial to allow ICS to operate effectively

  8. Three cumulative levels of disclosure • Obligation for sellers to release pricing data to allow ICS to provide full market coverage (ban onrefusal to deal/be listed) • ICS support • Article 21 of the telecommunications package • With regards to relational services (eg retail banking & utilities), obligation for sellers to release usage profile data (with consumer consent) to allow ICS to provide customised price comparisons – consumer data portability • Data ownership issues around reselling without consumer consent • With regards to relational services, obligation for sellers to tell consumers if there is a better tariff for their profile – on-going duty to disclose

  9. Possible solutions/1: • Change the business model from two-sided to one-sided Consumers fund ICS rather than firms by paying: • A fee: problem – consumer bias against paying upfront for advice (“hyperbolic discounting”) • A subscription (eg Which? model): problem – excludes some consumers • A % of savings made: problem – can be difficult to calculate saving (not always) The incentives of ICS change: • Full market coverage • Accurate rankings • Best algorithms • Most accurate and up-to-date information from firms

  10. Possible solutions/2? • Independent comparison site, for eg run by national regulator or at EU level • Expensive - need to raise consumer awareness • Resource-intensive • Difficult to keep up-to-date with changing technologies • Code of conduct / self regulation • Weak – as cannot be enforced and sites can simply leave the code • Studies have shown a lack of consumer trust in online trust marks/certification • Banning two-sided ICSs through regulation (ban on commissions) • Proportionality? • Ban selling consumer data (without permission) / use of cookies (links to digital agenda)

  11. Use existing EU legislation to sponsor solution • UCPD provisions on misleading actions and omissions mean traders have a duty to disclose information to consumers • Only applies to B2C • In a one-sided business model where the consumer pays the ICS, could the ICS be regarding as acting on behalf of the consumer? • Traders would be forced to disclose full information, allowing more effective comparisons • Only one-sided business models could be allowed to benefit from this interpretation • Therefore one-sided business models would enjoy a competitive edge over two-sided models.

  12. Thanks Harriet C. Gamper Civic Consulting - Berlin gamper@civic-consulting.de www.civic-consulting.de

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