DOI: 10.5176/2251-2055_MME1225

Authors: Shrabastee Banerjee, Apratim Mukherjee and Somprakash Bandyopadhyay

Abstract: The increasing popularity of on-line social networkshas redefined the way people interact. As a consequence,consumers now exchange opinions about their purchasingbehavior on social networking websites, which subsequentlyinfluences their shopping decision. One of the fundamentalreasons for the evolution of an economic system is the alterationof consumer choice over time. In this paper, we study the allpervadinginfluence of social networks on consumers’ inclinationtowards on-line shopping, which in turn affects the veryfunctioning of certain traditional (“brick-and-mortar”) markets.More specifically, we study a model of influence in socialnetworks to show the change in consumer behavior patternsusing an agent based interaction model. Agent-based modelingand simulation (ABMS) is a new approach to modeling systemsthat comprise interacting autonomous agents. It is a promisingtool for modeling social life as interactions among adaptive agentswho influence one another in response to the influences theythemselves receive. Building upon the Transaction CostEconomics theory, the objective of our study is to examine theeffect of social networks on the “perceived transaction cost” of anindividual, which is what determines his/her inclination to buyonline. Using agent-based models, we create a virtual populationincluding several hundreds of artificial consumers to study therate of adoption of on-line shopping by consumers. Inconventional modeling of the diffusion process, there is no way todescribe how the cognitive aspects of agents as well as diversity ofthe agents’ decision making processes give rise to the observedrate, extent or order of the diffusion process. A particular issueexplicitly examined in our model is how customers interact withearly adopters of on-line shopping and modify their perceivedtransaction cost in deciding to buy on-line. We model theadoption decision of individuals as a gradual transformationaffected by three factors: (1) the number of early adopters(influencers), (2) the average numbers of direct friends of theadopters and potential adopters, and (3) the type ofcommodity/market under consideration.

Keywords: Transaction Cost, Social Network, Agent basedmodeling and Simulation, on-line shopping, Consumer BehaviorModeling

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