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The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions
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The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions
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Journal Article
The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions
2018
Overview
Online search intermediaries, such as Amazon or Expedia, use rankings (ordered lists) to present third-party sellers’ products to consumers. These rankings decrease consumer search costs and increase the probability of a match with a seller, ultimately increasing consumer welfare. Constructing relevant rankings requires understanding their causal effect on consumer choices. However, this is challenging because rankings are endogenous: consumers pay more attention to highly ranked products, and intermediaries rank the most relevant products at the top. In this paper, I use the first data set with experimental variation in the ranking from a field experiment at Expedia to make three contributions. First, I identify the causal effect of rankings and show that they affect what consumers search, but conditional on search, do not affect purchases. Second, I quantify the effect of rankings using a sequential search model and find an average position effect of $1.92, which is lower than literature estimates obtained without experimental variation. I also use model predictions, data patterns, and a feature of the data set (opaque offers) to show rankings lower search costs, instead of affecting consumer expectations or utility. Finally, I show a utility-based ranking built on this model’s estimates benefits consumers and the search intermediary.
Data and the online appendix are available at
https://doi.org/10.1287/mksc.2017.1072
.
