How valuable are shopbots?

Abstract

The price information that shopbots provide to buyers is clearly valuable, as it enables them to make a better informed choice of product and vendor. We quantify the value of this price information to the buyer in terms of the price dispersion and the buyer's brand preferences, and consider scenarios in which the buyer pays a seller, a shopbot, or some other third party for price information. As an illustration, we compute the value of price information of well known retailers in online book markets, using data on price dispersion and brand preferences reported by Smith and Brynjolfsson, finding that information about a book's price can be about 6% to 10% as valuable as the book itself.