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Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior

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  • Babur De Los Santos
  • Ali Hortacsu
  • Matthijs R. Wildenbeest

Abstract

Using a large dataset on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various search models. We find that the benchmark model of sequential search with a known price distribution can be rejected based on recall patterns found in the data as well as the absence of dependence of search decisions on prices. Our findings suggest fixed sample size search provides a more accurate description of search behavior. We then utilize the fixed sample size search model to estimate demand elasticities of online bookstores in an environment where store preferences are heterogeneous. (JEL D12, D83, L81)

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 102 (2012)
Issue (Month): 6 (October)
Pages: 2955-80

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Handle: RePEc:aea:aecrev:v:102:y:2012:i:6:p:2955-80

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References

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  1. Mortensen, Dale T, 1970. "Job Search, the Duration of Unemployment, and the Phillips Curve," American Economic Review, American Economic Association, vol. 60(5), pages 847-62, December.
  2. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  3. Babur de los Santos, 2008. "Consumer Search on the Internet," Working Papers 2008-06, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  4. Chen, Xiaohong & Hong, Han & Shum, Matthew, 2007. "Nonparametric likelihood ratio model selection tests between parametric likelihood and moment condition models," Journal of Econometrics, Elsevier, vol. 141(1), pages 109-140, November.
  5. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  6. Gabriel Talmain & Chien-Fu Chou, 1990. "Non-Parametric Search," Discussion Papers 92-01, University at Albany, SUNY, Department of Economics.
  7. Rami Zwick & Amnon Rapoport & Alison King Chung Lo & A. V. Muthukrishnan, 2003. "Consumer Sequential Search: Not Enough or Too Much?," Marketing Science, INFORMS, vol. 22(4), pages 503-519, October.
  8. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  9. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, 06.
  10. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-86, June.
  11. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
  12. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc.
  13. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
  14. Rosenfield, Donald B. & Shapiro, Roy D., 1981. "Optimal adaptive price search," Journal of Economic Theory, Elsevier, vol. 25(1), pages 1-20, August.
  15. Manning, R & Morgan, Peter B, 1982. "Search and Consumer Theory," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 203-16, April.
  16. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  17. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December.
  18. Sonnemans, Joep, 1998. "Strategies of search," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 309-332, April.
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Citations

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Cited by:
  1. Wismer, Sebastian, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79999, Verein für Socialpolitik / German Economic Association.
  2. Michael R. Baye & Babur De los Santos & Matthijs R. Wildenbeest, 2013. "Searching for Physical and Digital Media: The Evolution of Platforms for Finding Books," Working Papers 2013-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  3. Stephan Seiler, 2013. "The impact of search costs on consumer behavior: A dynamic approach," Quantitative Marketing and Economics, Springer, vol. 11(2), pages 155-203, June.
  4. Jin-Hyuk Kim & Tin Cheuk Leung, 2013. "Quantifying the Impacts of Digital Rights Management and E-Book Pricing on the E-Book Reader Market," Working Papers 13-03, NET Institute.
  5. Sergei Koulayev, 2009. "Estimating demand in search markets: the case of online hotel bookings," Working Papers 09-16, Federal Reserve Bank of Boston.
  6. Jason Allen & Robert Clark & Jean-François Houde, 2012. "Price Negotiation in Differentiated Products Markets: Evidence from the Canadian Mortgage Market," Working Papers 12-30, Bank of Canada.
  7. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.
  8. Jason Allen & Robert Clark & Jean-François Houde, 2014. "Search Frictions and Market Power in Negotiated Price Markets," NBER Working Papers 19883, National Bureau of Economic Research, Inc.
  9. Syngjoo Choi & Lars Nesheim & Imran Rasul, 2010. "Reserve price effects in auctions: estimates from multiple RD designs," CeMMAP working papers CWP30/10, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
  10. Maarten Janssen & Alexei Parakhonyak & Anastasia Parakhonyak, 2014. "Non-reservation price equilibria and Consumer search," HSE Working papers WP BRP 51/EC/2014, National Research University Higher School of Economics.
  11. Navid Mojir & Ahmed Khwaja & K. Sudhir, 2014. "Spatiotemporal Search," Cowles Foundation Discussion Papers 1942, Cowles Foundation for Research in Economics, Yale University.
  12. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Search with Learning," Working Papers 2012-03, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  13. Michael R. Baye & Babur De los Santos & Matthijs R. Wildenbeest, 2013. "Search Engine Optimization: What Drives Organic Traffic to Retail Sites?," Working Papers 2013-02, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  14. Andrew Caplin & Mark Dean, 2014. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," NBER Working Papers 19876, National Bureau of Economic Research, Inc.
  15. Maarten Janssen & Alexei Parakhonyak, 2014. "Consumer search markets with costly revisits," Economic Theory, Springer, vol. 55(2), pages 481-514, February.

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