A simulation model using transaction cost economics to analyze the impact of social media on online shopping

Abstract

In this paper, we have developed an agent-based simulation model to study the influence of social media on consumers’ inclination towards on-line shopping. Social media includes web-based and mobile based technologies which are used to turn communication into interactive dialogue between organizations, communities, and individuals. Building upon the Transaction Cost Economics theory, the objective of our study is to examine the effect of social media on the “perceived transaction cost” of an individual, which determines his/her inclination to buy online. Transaction cost economics (TCE) theoretically explains why a transaction subject favors a particular form of transaction over others. Since purchasing from online stores can be considered a choice between the internet and traditional stores, it is reasonable to assume that consumers will go with the channel that has the lower transaction cost. Using agent-based models, we have studied the rate of adoption of on-line shopping by consumers and found it to be exponential, not linear. © Springer-Verlag Berlin Heidelberg 2012.