Search Cost and Obfuscation Equilibrium: An Empirical Investigation

Abstract

Easy price search makes demand tremendously price-sensitive. However, merchants’ obfuscation strategy can hinder consumers from searching, thus greatly reducing their price sensitivity to other products. This paper presents an empirical examination of how obfuscation strategy affects consumers’ purchasing decisions. The author improves the model proposed by Glenn Ellison and Sara Fisher Ellison and applies the observed data from taobao.com and tmall.com to the model. This paper proves that, for some products in these two websites, the prices and the rankings can significantly affect sales volume, and for some products, merchants will adopt obfuscation strategies for low-quality products to maximize their profits.