Shopbots -- software agents that automatically query multiple on-line vendors to gather information about prices and other attributes of consumer goods and services -- herald a future in which autonomous agents become an essential component of nearly every facet of electronic commerce [3, 12, 18, 6]. Since the launch of BargainFinder [13], a CD shopbot, on June 30, 1995, scores of shopbots have emerged which, in response to a consumer's expressed interest in an item, query several dozen producers' web sites, and then return sorted information to the consumer, within seconds. For example, a shopbot available at shopper.com claims to compare over 1,000,000 prices on 100,000 computer-oriented products. Another shopbot, DealPilot.com, gathers, collates, and sorts the prices and expected delivery times of books, CDs, and movies offered for sale on-line. One of the more popular shopbots, mysimon.com, provides information about office supplies, groceries, toys, apparel, and consumer electronics, just to name a few of the items on its product line. Shopbots outperform and out-inform humans by providing extensive product coverage in just a few seconds, far more than a patient, determined human shopper could achieve after hours of manual search.
Shopbots deliver on one of the great promises of the Internet and e-commerce: a radical reduction in the cost of obtaining and distributing information. It is generally recognized that the freer flow of information will profoundly affect market efficiency, as economic friction will be reduced significantly [1, 7, 14, 4]. Transportation costs, menu costs -- the costs to firms of evaluating, updating, and advertising prices -- and search costs -- the costs to consumers of seeking out optimal price and quality -- will all decrease, as a consequence of the digital nature of information as well as the presence of autonomous agents that find, process, collate, and disseminate that information at little cost. What are the implications of the widespread use of shopbots? Specifically, do shopbots have the potential to increase social welfare? If so, how can shopbots adequately price their services so as to provide consumers with incentives to subscribe, while retaining profitability? More generally, what is the expected impact of agent technology on the nascent information economy?
Previous work in economics on the impact of search costs on equilibrium prices was oriented towards explaining the phenomenon of price dispersion in social economies; see, for example, [16, 19, 2]. In such work, an attempt is made to approximate human behavior with mathematical functions or algorithms, and under the relevant assumptions, collective behavior and equilibria are studied. In contrast with previous intentions, our mission is to investigate the possible dynamics of the future information economy in which software agents, rather than human constituents, play the key role. Consequently, we take mathematical functions and algorithms a good deal more seriously, by regarding them as precise specifications of the behavior of economic players. In this paper, we focus on the likely effect that one particular specification of a class of agents, namely shopbots, will have on electronic markets. From this study, we hope to gain insights into the design of adaptive algorithms for economically-motivated, computational agents which successfully maximize utility.
This paper is organized as follows. The next section presents our model of a simple market in which shopbots provide price information; this model is then analyzed from a game-theoretic point of view in Sec. 3.1. In Sec. 4, we consider the dynamics of interaction among software agents designed to model electronic buyers and sellers; moreover, we investigate the effect of non-linear search costs (Sec. 4.1) and irrational consumers (Sec. 4.2) via experimental simulations. In Sec. 5 we extend our model by introducing shopbots, who act as intermediaries, strategically pricing the information services they provide. Finally, in Secs. 6 and 7 we describe related and future work, respectively.