On search cost and the long tail: the moderating role of search cost

E-commerce researchers and managers have argued that long tail effects on pricing and product purchase are an important way in which Internet retail differs from traditional “brick & mortar” businesses. These effects have been attributed to several factors including increase assortment size and the reduction of search costs amongst others. While the Internet by its nature lowers search costs, its effect is not uniform. This study looks at that heterogeneity. Specifically, we investigate whether the role of reduced search costs in the long tail phenomenon is better conceptualized as a direct effect, or as a moderating effect. We contribute to the literature by combining the rationale from variety seeking behavior and need for uniqueness found in marketing with information systems research on search costs. Using consumer purchase information for over 16,000 purchases in a single product category, from over 4000 households, we perform a direct test of the impact of search costs on the Internet by comparing the product dispersion of purchases within homes with broadband service to those in homes with dial-up service. This study provides evidence that the conventional view that search costs directly impact consumer propensity to purchase a niche good can be improved by looking at search costs as an environmental condition which alters purchase behavior. Specifically, we find that search costs act primarily as a moderating factor for socio-economic status independent variables, altering the impact of classic consumer purchase factors.