Prof. Lin Liu
Beihang University, China

Title:

Strategic Interactions between On-site Search Costs and Travel Costs in a Competitive Market

Abstract:

With the decrease in the cost to visit stores, do firms have an incentive to facilitate consumers’ on-site information collection and evaluation on product attributes? This paper attempts to shed light on this important question with a parsimonious economic model that considers both travel cost (transportation cost between firm visits) and search cost (product inspection cost on-site) and explores how they affect consumer search behavior and firms’ pricing decisions. Specifically, consumers make a trade-off between how many attributes to evaluate (search depth) and whether to continue the search to the next firm (search breadth). The analysis reveals a novel interaction effect: lower (higher) search cost benefits firms if travel cost becomes lower (higher). Thus, facilitating consumers’ on-site product evaluation may benefit firms in the context of reduced travel cost. Critically, we show that this interaction effect occurs only when search depth is endogenous: with exogenous search depth, firms always want to make on-site product evaluation more difficult whether travel cost increases or decreases. These results are built off of interesting roles that travel and search costs play: they play the same role on firms’ competition when search depth is exogenous whereas they play opposite roles—depth and prices increase (decrease) in travel (search) cost—when search depth is endogenous and partial-depth search prevails. Relevant managerial implications are discussed.

Biography:

Dr. Lin Liu works as a full professor at the School of Economics and Management, Beihang University. He obtained his Ph.D. from the Marshall School of Business at the University of Southern California, M.S. in Computer Science from the Department of Mathematics and Computer Science at Emory University and B.E. in Computer Science and Technology from Tsinghua University, China. His research interests focus on digital platforms and economy, information management, value of data in business. His papers are published in leading business and economics journals including Management Science, Production and Operations Management, Journal of Economics and Management Strategy, Economics Letters, Journal of Institutional and Theoretical Economics, Managerial and Decision Economics. His research won Shankar-Spiegel Best Paper Award hosted by Northwestern University and TAMU, and NET Institute Grant from New York University. He serves as an associate editor for the Journal of Digital Economy and worked at the University of Central Florida before joined Beihang.