Essays on Consumer Switching and Search Behavior

As recommender systems have increasingly become prevalent to guide consumers to find their desired products in many industries, understanding the impact of recommender systems on consumer choices is critical to the business performance and raises important policy implications. In this thesis, we examine the role of different recommendation schemes, spanning from interpersonal recommendations in social environment given by peers to product display recommendations in physical shopping environment given by sellers on consumers’ switching and search behavior in two distinct case studies. In the first study, we look at the effect of peer recommendations on subscriber churn in a large mobile network. We find that consumers’ propensity to churn increases with the number of friends that churn and in particular with the number of strong friends that churn. In the second study, we implement an in-vivo randomized field experiment to measure the effect of product display recommendations as book placement on shopper behavior in a physical bookstore. We leverage video tracking technologies to monitor how shoppers respond to random book placement, which induces random search costs. We find that books recommended at the edge of the table are more likely to be picked and taken than those placed at the center of the table. More interestingly, we also find that conditional on being picked, shoppers are equally likely to take books placed at the edge and at the center of the table, suggesting that display recommendations positively affect consumer choice mainly through its effect on the search process and not through its effect on the consideration process. Therefore, we empirically show that provision of recommendations, although in different schemes, may generally help to reduce consumers’ search costs in product or service discovery process, relative to what they would do without such an intervention. Moreover, we perform a comparative analysis between offline and online applications of recommender systems to systematically investigate the current practices, future prospects and policy perspectives when applying recommender systems in physical retailing. All these issues highlight opportunities for physical retailers to design, implement and evaluate their recommender systems that offer convenience benefits and appropriate protection to consumers.