CONSUMER WILLINGNESS TO BUY ONLINE USING TRANSACTION COST

ECONOMICS AND THE THEORY OF REASONED ACTION1

A Literature Review
Part 2 of 2

Shiloh Marren S. Laciste

Graduate Staffmember
School of Economics
University of Asia and the Pacific

Jovi C. Dacanay, Ph.D.

School of Economics
University of Asia and the Pacific

The second portion of this two-part series articulates on the preference of consumers to

choose online shopping and explains why they prefer this platform.

Theory of Reasoned Action

The Theory of Reasoned Action (TRA) is also another approach used in several studies

involving online consumer behavior. TRA states that “behavioral intentions, which are immediate

antecedents to behavior, are a function of salient information or beliefs about the likelihood that

performing a particular behavior will lead to a specific outcome” (Azjen & Fishbein, 1975; Azjen

& Fishbein, 1980) (as cited in Madden et al). Azjen and Fishbein have distinguished two sets of

beliefs that may affect behavioral intentions, these are behavioral beliefs and normative beliefs.

The former kind of belief is postulated to be influenced by attitudes toward the performance of the

behavior, while the latter kind of belief is said to be influenced by the individual’s subjective norm

1
The article is an excerpt from the Thesis Proposal of Shiloh Laciste. This article is published with her permission.
Dr. Jovi Dacanay is her thesis adviser.

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about performing the behavior. In other words, other important beliefs besides the aforementioned

can affect the intentions of the individual, either through attitudes or subjective norm.

To further identify how intention can affect behavior, Azjen and Fishbein (1980) have

enumerated three boundary conditions. First, “the degree to which the measure of intention and

the behavioral criterion correspond with respect to their levels of specificity”. Second, “the

stability of intentions between the time of measurement and performance of the behavior”. Third,

“the degree to which carrying out the intention is under the volitional control of the individual” (as

cited in Madden et al). Focusing on the limitation of the last condition, Azjen and Fishbein have

extended the analysis of TRA to include how perceived behavioral control can affect both

behavioral intention and behavior. This extended analysis became formally known as the Theory

of Planned Behavior (TPB). Figure 1 shows the TRA model.

Figure 1. Theory of Reasoned Action

Source: Madden et al, 1992

Theory of Planned Behavior

Similar to the TRA, the sole focus of the TPB is the intention of the individual to perform

a certain behavior. Intention is a critical part of the theory because it serves as an indicator of how

much people are willing to exert their effort to a given behavior. “It captures the motivational

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factors that influence a behavior” (Azjen, 1991). It is important to note that the stronger the

intention to perform a particular behavior, the more likely a person will be engaged in that

behavior, provided that the behavioral intention is under the volitional control of the individual as

specified in the third boundary condition of the TRA. However, it cannot be ignored that there are

certain situations where a person does not have a complete control over his intentions. These

impediments to the control of his intentions can take on the form of non-motivational factors such

as availability of requisite opportunities and resources such as time money, skills, cooperation of

others. It is because of this lack of volitional control that gives rise to the TPB. Since it is already

evident that actual behavioral control can affect intentions, that is resources and opportunities

available to a person may to some extent influence his performance of a given behavior, then it is

of primary interest of how perceived behavioral control can affect intentions and eventually

behavior. Adding perceived behavioral control as a factor affecting intention is what differentiates

TPB from TRA. It is worthy to note that the notion of perceived behavioral control by Azjen, 1991

is closely related to Bandura’s (1977, 1982) concept of self-efficacy, wherein it is “concerned with

judgements of how well one can execute courses of action required to deal with prospective

situations” (Bandura, 1982) (as cited in Azjen, 1991). It simply states that the performance a

behavior depends on the confidence of the person to perform that behavior. TPB has used self-

efficacy as an antecedent to behavioral intentions. Furthermore, it is claimed by the TPB that both

perceived behavioral control and behavioral intention can predict behavioral achievement. There

are two reasons to explain this. First, “holding intention constant, the effort expended to bring a

course of behavior to a successful conclusion is likely to increase with perceived behavioral

control”. Second, “perceived behavioral control can often be used as a substitute for a measure of

actual control depends, of course, on the accuracy of the perceptions”. There are three conditions

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where perceptions are not accurate such as “the person has little information about the behavior,

when requirements or available resources have changed, or when new and unfamiliar elements

have entered into the situation”. Satisfying any condition may be detrimental to the accuracy of

the behavioral prediction. Nonetheless, perceived behavioral control is still sufficient in predicting

the likelihood of a performance of a given behavior (Azjen, 1991). Figure 2 shows the TPB model.

Figure 2. Theory of Planned Behavior

Source: Madden et al, 1992

Due to the richness of the TRA and TPB in predicting the probability of a behavior, it has

been used by several researchers in studying internet purchasing behavior. Using data from 193

College students, findings of George (2002) indicate that beliefs about internet’s trustworthiness

and the belief on one ’s own ability to make purchases online increase their willingness to buy

products online compared to those who did not have such beliefs. Pavlou and Fygenson (2006)

have studied e-commerce adoption by extending the theory of planned behavior. In their study,

instead of examining one behavior, they investigated simultaneously two types of behavior involve

in e-commerce adoption, namely: getting information from the online store and purchasing a

product from a Web vendor. They have examined the relationship of these two types of behavior

and have identified the attitude, perceived behavioral control, and subjective norm affecting

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behavioral intention for each behavior. In addition, they have tested several important beliefs for

each behavior. Their results suggest that among all the beliefs tested, trust and technology adoption

variables such as perceived usefulness and ease of use are deemed to be important in predicting e-

commerce adoption.

Technology Acceptance Model

Another extension of the TRA is the Technology Acceptance Model (TAM). TAM was

introduced by Davis (1986) and is considered as less generalized compared to the TRA. TAM was

created to predict and to explain a user’s acceptance of a specific technology or information

system. According to Davis et al (1989), “the goal of TAM is to provide an explanation of the

determinants of computer acceptance that is general, capable of explaining user behavior across a

broad range of end-user computing technologies and user populations, while at the same time being

both parsimonious and theoretically justified.”. The purpose of TAM is to identify external factors

that govern a user’s acceptance of a given system which may have considerable influences on his

internal beliefs. TAM uses the TRA as a theoretical support in order to explain the relationship of

these external factors to the belief system of an individual. TAM uses two particular beliefs,

namely: perceived usefulness and perceived ease of use. Figure 3 shows the TAM model.

Figure 3. Technology Acceptance Model

Source: Davis et al, 1989

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 TAM has been used in a wide array of studies concerning the acceptance of a user of a

given system (Mattheison, 1991; Venkatesh, 2000; Davis, 1985; Gefen & Straub, 1997; Koufaris,

2002). In a study made by Caswang (2013), he used TAM alongside trust in explaining a

consumer’s willingness to use a credit card. His results showed that perceived usefulness and

perceived ease of use were highly significant in predicting the use of a credit card network among

Filipinos. In addition, since navigating through online shops also requires the use of an information

system (e.g internet and websites), TAM becomes a useful tool in predicting the willingness of a

consumer to purchase products online. Li and Huang (2009) for example studied TAM and the

Theory of Perceived Risk in analyzing the shopping behavior of consumers. They gathered data

from 637 respondents and use structural equation modeling in testing if the model fits the data.

Their study showed that both perceived usefulness and perceived ease of use positively affects

behavioral intention, which eventually affects actual purchases on the internet.

Moreover, a study has compared technology acceptance model (TAM) and TPB in

predicting the use of information systems (IS). It is found out by the study that TAM has an

advantage over TPB when it comes to its empirical application because TAM is easier to apply

but only provides a general overview of the user’s opinion regarding an IS, whereas TPB has more

specific information which may be beneficial in giving more drawing clear implications and guides

for development. (Matthieson, 1991) (as cited in Madden, 1992).

Trust

Trust plays a crucial role in the development of e-commerce. This is heightened by the fact

that online transaction involves a spatial and temporal separation unlike traditional e-commerce

(brick and mortar) wherein there is a personal encounter with a store and the vendor. Because of

this separation, consumers are reluctant to purchase in the online channel. “In essence, consumers,

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do not trust most Web providers enough to engage in relationship exchanges with them” (Hoffman

et al, 1998) (as cited in Grabner-Kareuter, 2002). In addition, there is a tight competition in the

online market wherein consumers are overwhelmed with several product offerings together with

conflicting marketing messages. Since consumers only have a limited information and cognitive

ability, they apply trust which is a form of a mental shortcut in order to reduce the uncertainty and

complexity of transactions in the online market. It is for this reason that trust is often integrated in

the study of online consumer behavior since trust has to be established before a consumer could

purchase products online. (Grabner-Kraeuter, 2002)

Researchers and scholars have agreed that there is no singular definition of trust. Different

areas of research each have their own definitions of trust. For instance, social psychologists view

trust as something dependent on the person’s expectation about the behavior of another person in

the transaction. It dwells more on the contextual factors that could either hinder or encourage the

use of trust (Lewick and Bunker, 1995) (as cited in Grabner-Kraeuter, 2002). On the other hand,

economists and sociologists define trust as a factor that could reduce the perceived uncertainty and

anxiety in a particular transaction (Williamson, 1993, Granovetter, 1985, Zucker, 1986) (as cited

in Grabner-Kraeuter, 2002). According to Li et al (2012), trust may fall in different categories such

as interpersonal trust, system trust, and disposition trust. “Interpersonal trust depends on the

characteristics of the individuals involved (such as competence, benevolence, integrity,

predictability, dependability) and the context in which it takes place. System trust refers to the trust

on a specific system or institutions which are derived from structural assurances (regulations and

laws) and situation normality (what makes the institution appear normal). Dispositional trust points

to the general attitude of a party towards trust – their propensity to trust and risks and their personal

strategy in dealing with others when seeking favorable outcomes”. These categories of trust, taken

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all together will paint a more comprehensive picture between the trust existing between a trustor

and a trustee. However, most researchers and theorists studying online transactions have focused

more on interpersonal trust and system trust since the object of trust does not only depend on the

relationship between the trustor and trustee but also on the technology as an object of trust.(Li et

al, 2012)

Since there is a spatial and temporal separation present in the online environment, trust

finds itself lacking in reducing uncertainty. Hence, a functional perspective of trust must be

analyzed and integrated into the economic framework. Trust in a particular transaction is referred

to as a risky action wherein either one or both parties involved in a transaction expects a positive

outcome without any control measure against opportunistic behavior (Ripperger, 1998) (as cited

in Grabner-Kraeuter, 2002). In here, the trustor expects that the system will function smoothly.

However, the ability of the trustor to have this expectation depends on a variety of factors such as

the character of the trustor, his willingness to trust, his experience, the experience of others, and a

lot more. In addition, trust could only exist if there is uncertainty. If a particular context or situation

is certain or does not pose risk, then trust would not be needed (Grabner-Kraeuter, 2002).

The study of trust has been combined with other theories in order to provide a more holistic

view of online consumer behavior. For instance, in the TCE literature, trust is included due to the

presence of bounded rationality and opportunism. Axelrod and Keohane (1985), Ba et al (1999),

Dasgupta (2009) and Liu et al (2009) have used the game theory approach in identifying what

constitutes to the establishment and maintenance of trust. The payoff structures help determine the

behavior of the parties in the transaction. In addition, it is claimed by Li et al (2012) that the online

transaction is best studied using a hypothetical bare transaction. “A bare transaction is one where

neither normative nor regulative institutional structures (safeguards) exist to secure cooperation

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between actors”. Due to the lack of security, the risk of cooperating is high; thus both parties may

resort to non-cooperation. This is considered a dominant strategy because both actors are unsure

of the behavior of the other. This bare transaction is a one-shot game, wherein repetition is not

allowed. Hence, only mutuality of interest can ensure cooperation between the two parties.

(Axelrod and Keohane, 1985; Shapiro et al, 1992) (as cited in Li et al, 2012). The one shot

exchanges are considered to be the transaction that have the lowest transaction cost. However,

those who are likely to engage in such transactions are those organizations that have a high

propensity to risk. In order to address this, transaction costs are incurred to facilitate cooperation.

According to Willamson (1985, 1993), “the creation of cooperation regulations is to balance the

perceived risk with the transaction cost associated with the exchange” (as cited in Li et al, 2012).

“An actor with a high disposition to trust or good knowledge of its partner’s mutual interests can

cooperate in a bare environment”. Moreover, Teo et al (2004) and Teo and Yu (2005), have

considered trust as an antecedent that helps lower transaction costs. Trust is measured in terms of

dependability. Dependability refers to the “ability of the seller to provide the buyer with outcomes

that match what the former has said or promised” (Swan et al, 1988) (as cited in Teo et al, 2004).

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