The Impact of Geographic Proximity on What to Buy, How to Buy, and Where to Buy: Evidence from High-Tech Durable Goods Market*

Abstract

Social contagion effects due to geographical proximity refer to the social effects wherein the behavior of an individual varies with the behavior of other individuals who are geographically close. Although the influence of such effects on consumer choices has been established in several contexts, much of the extant studies have focused on its effect on consumers’ decision of whether to buy a new product or adopt a new innovation. There has been no systematic examination of the influence of geographic proximity on other aspects of consumers’ product buying process such as what to buy (i.e., brand choice), how to buy (i.e., the channel), and where to buy (i.e., retailers). Such effects can matter significantly in high-technology and durable goods markets and therefore, it is critical to understand the scope of these on consumers’ choice of retailers and channel as well. Drawing on literatures from word of mouth effects, ecommerce, and consumers’ perception of risk in their purchase process, we develop a set of hypotheses on the effect of geographic proximity on consumers’ choices of what to buy, how to buy, and where to buy. Leveraging a microlevel dataset of purchases of personal computers, we develop brand-, retailer-, and channel-related measures of proximity effects at the individual consumer level and estimate a joint disaggregate model of the three choices that make up a product purchase process to test these hypotheses. Our results indicate a significant contagion effect on each of the three choices. Furthermore, we find evidence of a greater effect of geographic proximity on inexperienced consumers—those who are new to the product category. Our results thus help develop a holistic understanding of the influence of social contagion effects on consumers’ decision making.