Consumer Search and the Structure of Personal Networks

We study how consumers’ information search for and purchase of new products are affected by structure of their personal network. We focus on two network characteristics namely homophily and balance, which are expected to moderate information diagnosticity and search discomfort. To address threats to internal validity common in network studies, we conduct a randomized experiment in which we manipulate the similarity of preference among consumers and their network contacts and allow them to search for information about a product from these contacts before deciding to make a purchase. We estimate consumers’ utility function and determine how network antecedents moderate the weight on others’ information. Our findings show that consumers like to gather information from similar others as it is perceived to be more diagnostic than information from dissimilar others. Balance has no direct effect on search. This null effect is due to a combination of higher diagnosticity and greater discomfort of gathering information in imbalanced networks. Overall, search from similar others in an imbalanced network is most likely to converge to purchase. Given the co-occurrence of homophily and balance in naturally occurring personal networks, our results emphasize the tradeoff between the two network antecedents for product purchase.