How Valuable are Shopbots?

Panos M. Markopoulos

Jeffrey O. Kephart

Computer and Information Science Dept.

University of Pennsylvania

TJ Watson Research Center

IBM Research

markopou@unagi.cis.upenn.edu

kephart@us.ibm.com

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 buyers 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 books price can be about
6% to 10% as valuable as the book itself.

Keywords
shopbots, brand, price dispersion, information value

1.

INTRODUCTION

Shopbotscomparison-shopping web sites that collate information on products from multiple vendorscan be a very
valuable tool for buyers [1, 8]. Typically, they permit buyers to sort product and vendor information along desired
dimensions, such as price, delivery time, or vendor reputation. The most sophisticated shopbots even provide personalized rankings that take into account an individual buyers
product and vendor preferences.
There are two components to the typical business model
employed by shopbots. Like most Internet information services, shopbots typically sell advertising space on their website. In addition, many shopbots make a commission on
sales that result from clickthrough purchases. The main
beneficiaries of the servicethe buyerspay nothing at all.
This is understandable. Today, it would be infeasible to
charge buyers for this service, given the lack of a suitably
widespread micropayment scheme, coupled with the inconvenience to buyers of being forced to deliberate over whether
to pay small amounts of money to get access to product information.

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However, in the future, we envision that buyers will employ economically-motivated agents that will purchase physical goods on behalf of human owners, and that in order to
carry out this task they may purchase information services,
such as the product information service offered by shopbots.
In such a future, it will be feasible for the shopbot or the sellers themselves to charge buyer agents for price information.
In order for a buyer agent to know how much it can spend
on product information, it must know the value of that information. Shopbots could use such information to govern
how long to wait for product information from sellers, or the
order in which sellers are contacted. Finally, sellers of price
information (presumably sellers of the physical product, or
the shopbot) could use knowledge of the value of product information to buyers in order to establish a fair price. Thus it
is interesting and important to quantify the value of product
information.
In this paper, our objective is to quantify the value of
product information. We do so by means of a simple model
that captures two of the most common and important dimensions of concern to buyers: price and brand.
Price information is valuable to the extent that price dispersion exists in a market. Despite claims that the Internet is frictionless, significant price dispersion has been
observed in online markets [4, 7, 3]. Furthermore, brand
appears to have a larger influence over purchase decisions
than other variables, according to Smith and Brynjolfsson
[5], who found that even buyers that use shopbots select the
cheapest vendor just half the time.
A similar model that took into account only price information was presented in [10]. That paper mostly considered
gaming issues and showed that product sellers have incentives to sell their price information and that their information price will not be driven down to zero in competition
settings. Our paper tries to quantify the value of product information regardless of which market entity (sellers
or intermediary) takes advantage of it. By adding brand
considerations in our model we hope to better model the
human-shopbot interaction.
In section 2, we introduce a simple model of valuations,
taking brand effects into account, and we derive an expression for the value of price information in terms of price dispersion and brand preferences. In section 3, we calibrate
our model using data on online bookstore price levels and
buyer preferences, as reported by Smith and Brynjolfsson[4].
Next, in section 4, we quantify the value of price information
to buyers under two different assumptions about how much
price information is already known to the buyers. Then, in

section 5, we look at the situation from the perspective of

an agent that sells the price information to the buyer agent,
asking how much that agent (presumably representing the
shopbot or the seller of the physical good) could charge the
buyer for price information. We make some general comments about markets for product information in section 6,
and summarize our findings in section 7.

2.

OUR MODEL

We consider a market of N sellers, each offering a wide

range of products. A buyer queries a shopbot for a product
chosen at random between all possible products. The shopbot displays the price that each individual seller charges for
the product and the buyer determines the utility that she
would obtain from any individual offer. The utility is equal
to U = v pi + bi , i 1..N , where v is the value of the
product to the consumer, pi is the price of seller i and bi is
the value the buyer receives from buying from seller i. bi can
also be interpreted as the degree of the buyers belief that
she will receive satisfactory and timely service from seller i.
We assume that v is an information private to the buyer.
All buyers are assumed to have identical bi s. These are
known to the sellers and a common knowledge in the market.
In order to calculate the marginal value of the information
regarding what a particular seller charges for the product, we
consider what would happen if seller i did not provide price
information but only the fact that he carries the particular
product that the buyer requested. In other words all sellers
provide the buyer with their price information while seller
i does not. We assume that the buyer believes that pi is
distributed according to the distribution with PDF fi (x),
particular to seller i. This distribution represents the buyers
beliefs about the overall price levels of seller i. This belief
could be formed by previous information obtained on other
products of seller i, or if the information is not available, the
belief can be formed with the help of the shopbot that can
rate sellers according to their overall price levels1 . Again,
fi (x) is common knowledge.
The buyer has compared across all sellers S that provide
price information for free and found seller m S that maximizes her utility. Let um be the utility obtained from purchasing seller ms product. Let ui be the expected utility
from purchasing the best product after having learned is
price as well. The marginal utility from knowing is price is
thus ui um . Notice that ui um 0, because the buyer
would only purchase is product if her utility would increase
from um by doing so.
If we denote the utility the buyer obtains from purchasing
is product as ui , then ui > 0 for ui > um pi < bi bm +
pm . So
Z

bi bm +pm

ui um =

fi (pi )(ui um )dpi =

Retailer
KingBooks:
A1Books:
Borders:
1Bookstreet:
BN:
Amazon

Shopbot
Market Share
18.6%
19.0%
20.7%
11.2%
14.1%
16.3%

Table 1: Percentage of times each bookstore carried

the cheapest item, including all costs, among the six
bookstores, as measured by Brynjolfsson and Smith.
Z

bi bm +pm

fi (pi )(bi bm + pm pi )dpi

which after additional algebraic manipulations becomes

Z

bi bm +pm

Fi (pi )dpi ,

where F (x) is the CDF of f (x). So,

Z

bi bm +pm

ui um =

Fi (x)dx

(1)

Given that the buyer can observe the price information of

a set of sellers S, we will be denoting the utility that the
buyer obtains from acquiring seller is price information as
u(i|S).

3.

INTERNET BOOKSTORES

In this section we calibrate our model with real price data

about six online bookstores.
In order to estimate a reasonable approximation to the
fi distributions that measure consumers uncertainty about
the price of a certain book at bookstore i, we make two simplifying assumptions: fi s are normal distributions and have
identical standard deviations, fi = N (mi , ). The identical
standard deviation assumption translates to the belief that
consumers have no reason to be more or less certain about
any bookstores price, before they discover it. Consumers
might view bookstores as likely to be cheap or expensive and might have an expected mean for the price they
are about to discover. We assume however that they have
the same uncertainty, across all bookstores, about how far
the actual price is from that mean.
We compute the exact form of the fi s from data provided
in [5] on the percentage of times a bookstore carried the
cheapest book, as shown in table 1. We seek to compute
six means and one standard deviation and thus we need a
system of seven equations.
The data from table 1 give rise to five equations (the sixth
is a linear combination of the other five). For example, the
equation for Amazon is:
Z

The StreetPrices.com shopbot displays graphically the

price range for a particular product, even before the user
has access to actual prices. A potential buyer can thus obtain a good idea of the price dispersion for the product.
Other websites, such as BizRate.com will provide information on the overall price levels of a particular seller. It is
thus feasible for a buyer to form reasonable expectations for
the price levels of a particular seller on a particular product
even without past experience.

Retailers at a Shopbot
Proportion of
Lowest Prices
29.7%
24.6%
19.3%
16.3%
6.1%
3.9%

f1 (x)6i=2 (1 Fi (x))dx = 0.039

(2)

We obtain a sixth equation by requiring that the average

book price (including all costs) is $13.69, as measured in
[4]. The seventh equation is obtained by requiring that six
price quotes display a standard deviation equal to 2.0, a fit
to the standard deviation of the price dispersion measured
by Brynjolfsson and Smith in [4].

0.2

Rank

Naive

1
2
3
4
5
6

KingBooks: 29.7%
A1Books: 24.6%
Borders: 19.3%
1Bookstreet: 16.3%
BN: 6.1%
Amazon 3.9%

Kingbooks
A1Books
Borders
1Bookstreet
BN
Amazon

0.15

0.1

0.05

$7.5

$10

$12.5

$15

$17.5

Predicted by
our model
Borders: 24.8%
Kingbooks: 22.0%
A1Books: 17.9%
Amazon: 15.5%
1Bookstreet: 11.5%
BN: 8.3%

Actual
Borders: 20.7%
A1Books: 19.0%
Kingbooks: 18.6%
Amazon: 16.3%
BN: 14.1%
1Bookstreet: 11.2%

Table 2: Shopbot market share as a percentage of

book sales among the six bookstores

$20

14.0%

Figure 1: Our model of consumers uncertainty

about book prices in six major Internet bookstores.
We assume that the consumers search for a book
whose average price is equal to the average book
price on the Internet. The parameters for the assumed normal distributions are mAmazon = 15.01,
mBN = 14.58, mBorders = 13.30, mA1Books = 12.99,
mKingBooks = 12.74, m1Bookstreet = 13.51, = 1.82

0.2

Borders
Kingbooks
A1Books
Amazon
1Bookstreet
BN

0.15

0.1

0.05

$7.5

$10

$12.5

$15

$17.5

$20

Figure 2: Consumers uncertainty including brand

effects for the six major Internet bookstores. The
parameters for the assumed normal distributions
are mAmazon = 13.17, mBN = 13.86, mBorders = 12.58,
mA1Books = 12.99, mKingBooks = 12.74, m1Bookstreet =
13.51, = 1.82

The solution of the system is displayed in figure 1.

Our next task is to account for the brand effect. We would
like to know how much cheaper a book should be, to account
for the brand effect in a similar book offered by a branded
retailer. According to Brynjolfsson and Smith, Amazon,
BN and Borders can charge on average $1.85, $0.72 and
$0.72 respectively more than an unbranded retailer to make
the buyer indifferent between their book offers. We will be
referring to Amazon, BN and Borders as branded retailers
for the rest of the paper and the rest of the bookstores as
unbranded.
From equation 1, we can see that this can be modeled as
a left shift of a branded bookstores price distribution (according to buyers uncertainty), by this amount, as shown
in figure 2. The average buyer that has the rational expectations as shown in figure 1 and values brand according
to the Brynjolfsson and Smith findings, can be modeled as
a price sensitive buyer that has price expectations according to figure 2. For the remaining of this paper we account
for brand effects in this fashion: We have shifted the price
distributions of the branded sellers to the left and consider
price sensitive buyers over the updated price distributions
that we continue to denote by fi and Fi for their PDF and
CDF respectively.
The predictive power of our model is somewhat limited,

12.0%
10.0%
8.0%

predicted by our
model
naive

6.0%
4.0%
2.0%
0.0%

Borders

KingBooks A1Books

Amazon 1Bookstreet

BN

Figure 3: Reality check: comparing the absolute errors of our model and the naive approach, that says
that buyers buy at shopbots only based on price.
as shown in table 2 and figure 3, but still a significant improvement over the naive assumption that shopbot users
prefer the cheapest product, which, according to [5] is true
only half the times. Differences from the actual data exist due to effects that are not captured by our model, such
as different buyer sensitivity to different price components2 ,
repeated sales effects, special promotions etc.

4.

INFORMATION VALUE TO BUYERS

The price information of each of the six bookstores in our

study has definite value to the shopbot user. Each additional
price quote increases the buyers chances of finding a more
desirable product. It is obvious that the value of information
to the buyer depends on what the buyer already knows.
Again, S is the set of sellers whose price information the
buyer can observe for free and the marginal value to the
buyer of the price information of seller i is denoted by u(i|S).
If i S then it is obvious that u(i|S) = 0, since the buyer
already knows seller is price.
We proceed to calculate the marginal value at two limits:
S consists of one seller j other than i.
S consists of all sellers other than i.
In the case where S consists of only one seller j, the average value of seller is price information is given by:
Z

Z

u(i|j) =

fj (x)
0

Fi (z)dz dx

(3)

where, again, fj (x) is the PDF of seller js product price

and Fi (x) is the CDF of seller is product price. The inner
integral is the expected increase of the buyers utility if he
2
According to Brynjolfsson and Smith buyers express the
peculiar behavior of being much more sensitive to mail costs
than the actual book price. The buyers decision is thus
influenced not only by the total book cost, but also by the
way that this cost is constructed. We have not attempted
to model this behavior in our paper.

$0.3

$1.80

Price Information
Value

$0.25

$1.60

$0.2

$1.40

$0.15

$1.20

$0.1

$1.00

$0.05

$0.80

$0.60
$0.40

BN
1Bookstreet
Amazon
A1Books
KingBooks
Borders

$0.20

ow

un

BN

tre

et

kn

known j

1Bo
oks

azo
Am

Bo
oks
A1

Bo
oks
Kin
g

Bo
rde
r

$0.00

Figure 4: Average value of the price information of

bookstore i, given that we know only of bookstore
js price
can observe seller is price, given that he already knows that
seller j charges x for his product (see also equation 1).
We have plotted u(i|j) in figure 4. The figure depicts the
average value of the price information of seller i (unknown),
given that we have already observed only seller js (known)
price. The buyer will experience the minimum average increase in utility (approximately 40 cents) if she discovers
BN.com book price, after she has observed Borders price.
The opposite case, where the buyer wishes to learn Borders
price, after she has observed BN.com price yields a maximum expected increase in utility, equal to approximately
$1.80.
In the case where S consists of all sellers other than i, we
proceed to calculate the marginal value for each of the six
bookstores, by considering what happens if the price information of a particular seller is not included in the shopbot.
For each of the six bookstores we ask the following question: Given that the buyer can observe the price data of
the other S bookstores, how much does the buyer value the
ability to know that bookstores price information as well?
or in other words: How much would a shopbot user be
willing to pay to have a bookstores price information included in the shopbot, given that she can observe the price
information of the others.
First, we note that given that the price of seller i cannot
be observed, the minimum price among the remaining S
sellers follows a distribution with CDF:
FSmin (x) = 1 jS (1 Fj (x))

(4)

min
dFS
(x)

with the corresponding PDF fSmin (x) =

denotdx
ing the probability that a certain x will be the minimum
price observed among the remaining five sellers.
So the expected marginal utility to the buyer of having
seller is price information included in the shopbot data is
thus:
Z

u(i|S) =
0

Z

fSmin (x)

Fi (z)dz dx

(5)

We plot u(i|S) in figure 5. In the figure, we consider

6
8
Additional Sellers

Borders
KingBooks & others
A1Books
Amazon
1Bookstreet
BN
10

Figure 5: Buyers marginal utility for having each

of the bookstores price included in the shopbots
data (assuming that the shopbot already includes
all other bookstores information) as a function of
the number of additional bookstores in the market,
in addition to the original six. Additional bookstores are assumed to be unbranded and identical
to KingBooks in overall price levels.

the effect of varying the number of sellers included in S,

by adding cheap, unbranded sellers in the hypothetical
market comprised of the six bookstores of our study. In
particular we add bookstores with overall price levels identical to Kingbooks.com, the bookstore with the lowest price
levels, according to the Brynjolfsson and Smith report.
Intuitively, the greater the number of sellers participating in a market, the smaller impact each one of them can
have on the consumers purchasing decisions. In figure 5,
we see that indeed competition reduces the marginal value
the buyer receives from each additional price quote. For example, the marginal value the buyer receives from knowing
Borders information drops from more than 30 cents for the
original market of the six bookstores to less than 10 cents
for a market of sixteen bookstores, or more than a threefold
decrease.

5.

THE INFORMATION SELLERS

PERSPECTIVE

This section explores the information sellers perspective

(infoseller) on the value that their price information carries. We will see that the infosellers perspective leads to
considerable higher values for the price information. The
infoseller could be the actual product seller, the shopbot or
some other entity. It is perhaps more realistic to expect that
information would be sold by the shopbot, on behalf of the
seller, with the revenues divided between the two.
The infoseller has a different viewpoint, because of the
multiplicative effect of price information: the value of product price information is utilized more often than the value of
the product itself. If we view the buyers marginal utility for
the sellers price information as the amount of money a rational buyer would be willing to pay to have the sellers information included in the shopbot list, then an infoseller would
sell his price information more often than the actual product
is sold, as buyers would require multiple price quotes for a
single purchase.
While price information is always sold if it is priced below its marginal value, an actual product is only sold when
the seller carries the most attractive choice for the shopbot

Value per
Product Sold

$1.2

10%

Borders
KingBooks & others
A1Books
Amazon
1Bookstreet
BN

$1
$0.8
$0.6

8%

Information Value
as a Percentage of
Product Revenue
KingBooks & others
Borders
A1Books
1Bookstreet
Amazon
BN

6%
4%

$0.4

2%

$0.2

Additional Sellers

Additional Sellers
6
8
10

Figure 6: Price information value per book sold, as

a function of additional bookstores in the market.

10 %

Information Value
as a Percentage of
Product Revenue

8%

Borders, KingBooks & others

6%

A1Books
1Bookstreet
Amazon
BN

4%
2%

Additional Sellers
2

10

Figure 7: Price information value as a percentage of

the bookstores revenues from product sales.

users which will only happen a fraction of the times buyers

enter the market, depending on the particular item a buyer
is looking for and the current market prices for that item.
So, the value of seller is information per product that the
seller sells is uproduct (i|S) = u(i|S)/plow (i), where plow (i)
is the probability that seller i carries the most attractive
price/brand combination for the item a buyer is interested
in. For plow (i) we use the sellers predicted market share
among shopbot users, from table 2, and plot uproduct (i|S)
in figure 6.
It is noteworthy that, even if the value of price information for each seller diminishes, from the buyers perspective,
as we add more and more bookstores in the market (see
figure 5), the relative importance of the same value for the
infosellers is impressively stable, due mainly to the multiplicative effect. In figure 6 we can see that the utilized value
of price information per product sold reduces by 20%-30%
for ten additional cheap competitors and almost stabilizes
beyond that number.
We can also have a first estimate of the relative sizes of
the shopbots book market and a hypothetical product information market: a market trading book price information. In figure 7 we depict the information value that each
bookstore generates, as a percentage of the bookstores revenues from selling books. To calculate this figure we use the
overall bookstores price levels, as calculated in figure 1 and
the probability of a buyer choosing the specific bookstore.
Another way to view figure 7 is as the ratio of book information value to book price for each bookstore. We see that
the price information value as a percentage of the books full
price ranges between 6% and 10%.
The infosellers would like to know how much they could
theoretically charge a shopbot user for their price information to be included in the shopbots results. Ideally, they

10

Figure 8: Book information value per one dollar of

book price for an alternative search cost of 40 cents.

would be able to charge the marginal value of their information to the potential buyer. However, this is not always
possible. Figures 6 and 7 refer to the maximum revenue that
an infoseller could possibly extract from the buyer. This is
of course an upper bound that probably cannot be realized.
The most important reason is that the buyer will usually
be able to access the sellers price information through other
means. We introduce an alternative search cost c that the
buyer can incur and learn seller is product price. This cost
represents the time and effort of visiting the sellers web site
directly and the added inconvenience of not having this information as part of the shopbots comparison shopping environment that facilitates the buyers decision making process. This cost can range from a few cents to infinity, in the
case that a seller refuses to provide any price information,
even at his website. The infoseller cannot charge the buyer
more than c, as in that case the buyer would choose to incur
the cost c and learn is price. From equation 5, the average
maximum price that the infoseller can hope to charge the
buyer for price information is:
Z

inf opricei (c) =

0

 Z

fSmin (x) min c,

Fi (z)dz dx (6)
0

For example, for an alternative search cost c equal to 40

cents, figure 7 would change to figure 8. In figure 8 we
see that the price information value as a percentage of the
books full price ranges between 5.5% and 8%, down from
6%-10% in figure 7. It is also worth noting that this value is
not necessarily monotonically decreasing in the number of
additional product sellers and for some bookstores peaks in
a market of nine competitors (the original six plus three).
It is natural that the value that an infoseller can demand
from a buyer for his price information decreases as the alternative cost that the buyer can incur and access this information through other means becomes lower. We have
plotted equation 6 in figure 9, where S represents all other
bookstores in the set of six bookstores that we study.
We observe that the maximum value an infoseller can extract is in accordance with the sellers popularity among the
shopbot users. The buyers would value Borders price information more than any other bookstore. We further observe
that the value of information is very sensitive to the alternative search cost, c, for small values of c, while it almost
stabilizes for c > $1. For three of the bookstores in our study
the value of information stabilizes for even lower values of
c, at around 40 cents.
The multiplicative effect can be seen in figures 10 and 11,
where we plot the average maximum value that an infoseller

Price Information
Value
$0.3

Borders
8%

KingBooks

$0.25

$0.15
$0.1

1BookStreet
Amazon
BN

6%

A1Books

$0.2

KingBooks
Borders
A1Books

Information
Value as a
Percentage of
Product
Revenue

Amazon

4%

1Bookstreet

2%
Alternative
Search Cost

BN

$0.05
$0.2

$0.4

$0.6

Alternative
Search Cost
$1 $1.2

$0.8

Figure 9: Average maximum value of the price information of the six bookstores, assuming that the
shopbot displays for free the information of the
other five, as a function of the buyers alternative
search cost c
Borders
KingBooks
A1Books
Amazon
1Bookstreet
BN

$1.2 Value per

Product
$1 Sold

$0.8
$0.6
$0.4
$0.2

Alternative
Search Cost

$0.2

$0.4

$0.6

$0.8

$1

$1.2

$0.2

$0.4

$0.6

$0.8

can extract from a buyer, per product that a seller sells and
as a percentage of a sellers product revenue, respectively.
We observe in figure 11 that unbranded, cheap retailers gain a comparative advantage in a market for product
information: their information is relatively valuable, while
their product revenues are relatively low, as a consequence
of their preference towards price competition. The value
ratios vary starting from 6% for BN.com to 10% for KingBooks3 , showing that sellers that compete mainly based on
price would have greater incentives to participate in such a
market for information. We also see that the value ratios are
high for Borders which even though it enjoys brand power,
maintains low overall price levels.
Finally, it should be noted that the values calculated in
this section assume that the infoseller is allowed to charge
different information prices for different books that a bookstore carries. Pricing is done so that it is always marginally
optimal for the buyer to purchase the price quote. If this
is not possible and a fixed price for the price quotes of a
bookstore is necessary, the expected revenues from price information deteriorate as can be seen in figure 12 for the case
of Amazon. This happens because, now, it is not certain
3

for sufficiently high alternative search costs.

$1.2

Figure 11: Value that the price information of a

bookstore generates for shopbot users, as a percentage of the bookstores revenues from product sales.
that the price quote of the seller will always be requested.
The result is a slightly higher price quote price and a lower
expected information revenue per buyer. In addition to reduced information revenues in the fixed price case, the seller
now faces the possibility of losing a product sale he could
otherwise have made, since it is possible that his price quote
will not be requested and the buyer will not get informed of
the bookstores offer.
To calculate the optimal fixed price used in figure 12,
we proceed as follows: We denote gi|S (q) the function that
maps a minimum discovered price q, among S sellers, to the
marginal utility a buyer gains from obtaining seller is price
information. From equation 1:
Z

gi|S (q) =
Figure 10: Value generated by the price information
of a bookstore per book sold, as a function of the
alternative search cost c. Alternatively, the value
that the price information of a book generates to
shopbot users, before the actual book is sold.

$1

Fi (x)dx
0

1
1
Let gi|S
be the inverse of gi|S , in other words, gi|S
maps a
price quote price to a product price. If q is the minimum
product price among the S sellers, an infoseller that charges
x for seller is price information would have an expected
revenue:
1
Ri (x) = x P r(gi|S
(x) < q),
1
1
(x) is less
(x) < q) is the probability that gi|S
where P r(gi|S
than q. This is simply:

1
Ri (x) = x 1 FSmin gi|S
(x)



(7)

and the first order conditions give the optimal fixed price
quote price:
0

Ri (x) = 0

(8)

It is evident that if the infoseller is the actual product

seller, this pricing scheme should be avoided as it can lead to
a potential loss of revenue from actual product sales. However if the infoseller is a shopbot, the fixed price scheme can
be used to simplify the buyers selection process.

6.

MARKETS FOR PRODUCT INFORMATION

Product information has definite value for the rational

consumer. More information always increases the chances
that the buyer will find a more suitable product. Consumers
seem to value products in a variety of ways, using different
measures, personal tastes and exhibiting loyalty and lock-in

$0.25
Fixed price

$0.20

Average price
and expected
profits per buyer
with variable price

$0.15
$0.10

Expected profits
per buyer with
fixed price

$0.05
$0

Additional Sellers

10

Figure 12: Comparison of price quote prices for

Amazon for the case where a different price quote
price is charged per book, versus a fixed price quote
price for all books. The values are given as function
of additional sellers, in addition to the original six,
entering the market. An infinite alternative search
cost is assumed, in other words the buyer agent cannot obtain price information unless it pays for it.

behavior for the sellers they patronize. This complex space

of consumer behavior has given rise to considerable price
dispersion even in market for products that most researchers
would categorize as commodities, such as books and CDs.
Searching in that product space is no easy task for the
rational consumer that seeks to maximize a personalized
concept of utility. Shopbots and price comparison web sites
facilitate this search but seem to fall short of offering the
wide variety of information different prospective buyers might
be interested in. For example, special seller offers or guaranties are usually not included in price comparison web sites
that tend to provide more structured information, capturing
more popular important product attributes, such as price
or delivery time.
Arguably the cost of maintaining extra product information dimensions exceeds the shopbots utility from providing
them; it is indeed expensive for a shopbot to keep track of all
different ways a seller chooses to present product information both online and offline and reprogram the information
gathering software every time a change takes place. It is
thus hardly surprising that only a bare minimum of product
dimensions is reported in shopbots websites.
Furthermore, most shopbot websites are in reality intermediaries, whose incentives do not always match with the
consumers desire of finding a best product at the best possible price. Special shopbot-seller deals are quite common as
shopbots seek ways to increase revenue, often at the expense
of information transparency [6].
Markets for product information can provide a solution to
these problems, as sellers and shopbots would have incentives to provide a wider variety of product information in a
timelier manner. In such a market a buyer would be buying
product information bundles, based on the expected utility
that the information would bring. Buyers will benefit from
being able to use their own personalized concept of utility
to make a better decision based on more information, but
that will come at a cost, since information will no longer be
free. Sellers and/or shopbots would want to sell this information as close to its marginal utility (as calculated in this

paper) as possible. Their revenues would then be directly

tied to the quality and quantity of information they provide
leading to higher information transparency. This is a major
advantage product information markets would have against
other shopbot revenue models, such as the sales commission
or the subscription based methods.
In a sense a market for product information would be operating in parallel with the product market that it supports,
an idea used in [9] and [2]. Prospective buyers interested in
participating in the product market would have the option
of using the information market first, as a guide, if they believe that the market information costs would be lower than
the potential savings.
It is, however, unreasonable to expect that humans would
bother to micro-manage their information purchases and
process large amounts of product data themselves. This
is a job better suited for economically-motivated software
agents that represent their human owners. Software agents
would be the key players in product information markets.
This paper gave an estimate of the size of a hypothetical
book information market compared to the size of the book
market itself. We computed that an information market can
be 6%-10% of the size of the product market, or, rather the
portion of the product market that is serviced by shopbots.
However, since it is arguably far less costly for the seller to
sell information rather than products, we would expect the
sellers profits in each of the markets to be of comparable
size.
In a hypothetical product information market, product
information would be sold as a bundle that includes multiple product dimensions, such as price, quality, delivery time
and special offers. This paper is the first one to account for
more than one product dimension in the valuation of product information: we have considered the effect of price and
brand on product information value.
We do not claim that the Internet book industry is more
or less likely than other industries to give rise to a market for product information. Our purpose was to provide
an estimate of the size of a prospective information market
based on industry data and the online book industry provided an excellent opportunity due to the Brynjolfsson and
Smith reports.

7.

CONCLUSIONS

We envision a future where economically-motivated software agents will be employed by humans to simplify their
purchases of physical goods. In such a future it will be feasible for the product seller or an intermediary (shopbot) to
charge buyer agents for price information. In this paper
we were able to quantify the value of product information
by means of a simple model that captures two important
product dimensions, price and brand, using data from the
Brynjolfsson and Smith reports.
We have separated the buyers and the information sellers
view of the problem and demonstrated that due to the multiplicative effect of information, product information value
can be as high as 10% of the product cost itself, in a market
comprised of real online bookstores.
Furthermore, we have discussed the possibility of the emergence of product information markets which would provide
a new business model for the shopbots operation. Product
information markets would contribute to higher information
transparency as sellers would have the incentives to provide

better, more accurate information in a timelier manner.

In future research we intend to extend the ideas presented
in this paper and construct models for product information markets in order to better understand their interaction
with the product markets they support. Our goal is to propose new business models for the operation of shopbots that
would improve the efficiency and information transparency
of the markets they support.

8.

ACKNOWLEDGEMENTS

The authors would like to thank Professor Lyle H. Ungar

for his valuable comments and suggestions.

9.

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