Price Uncertainty and Consumer Search: A Structural Model of Consideration Set Formation
AbstractWe offer an econometric framework that models consumer's consideration set formation as an outcome of her costly information search behavior. Because frequently purchased products are characterized by frequent price promotions of varying depths of discounts, a consumer faces significant uncertainty about the prices of the brands. The consumers engage in a fixed-sample search strategy that results in their discovering the posted prices of a subset of the available brands. This subset is referred to as the consumer's “consideration set.” The proposed model is estimated using the scanner data set for liquid detergents. Our key empirical results are: (i) consumers zincur significant search costs to discover the posted prices of the brands; (ii) whereas in-store displays and feature ads do not influence consumers' quality perceptions of the brands, they significantly reduce search costs for observing the prices of the brands; (iii) per capita income of consumer's household significantly increases her search costs; and (iv) the consumers' price sensitivity is seriously underestimated if we were to assume that consumers get to know all the posted prices at zero cost. The proposed model is also estimated for the ketchup category to enable us to do cross-category comparisons of consumers' price search behavior
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by INFORMS in its journal Marketing Science.
Volume (Year): 22 (2003)
Issue (Month): 1 (June)
price uncertainty; consumer search; consideration set; quality uncertainty; consumer learning; bayesian updating; structural model; econometric estimation;
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Erik Brynjolfsson & Astrid Dick & Michael Smith, 2010. "A nearly perfect market?," Quantitative Marketing and Economics, Springer, vol. 8(1), pages 1-33, March.
- Nitin Mehta & Surendra Rajiv & Kannan Srinivasan, 2004. "Role of Forgetting in Memory-Based Choice Decisions: A Structural Model," Quantitative Marketing and Economics, Springer, vol. 2(2), pages 107-140, June.
- Vardit Landsman & Moshe Givon, 2010. "The diffusion of a new service: Combining service consideration and brand choice," Quantitative Marketing and Economics, Springer, vol. 8(1), pages 91-121, March.
- Jean-Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2010.
"State dependence and alternative explanations for consumer inertia,"
RAND Journal of Economics,
RAND Corporation, vol. 41(3), pages 417-445.
- Jean-Pierre Dubé & Günter J. Hitsch & Peter E. Rossi, 2009. "State Dependence and Alternative Explanations for Consumer Inertia," NBER Working Papers 14912, National Bureau of Economic Research, Inc.
- Renault, Régis & Anderson, Simon P., 2013. "The Advertising Mix for a Search Good," Economics Papers from University Paris Dauphine 123456789/12407, Paris Dauphine University.
- Tülin Erdem & Kannan Srinivasan & Wilfred Amaldoss & Patrick Bajari & Hai Che & Teck Ho & Wes Hutchinson & Michael Katz & Michael Keane & Robert Meyer & Peter Reiss, 2005. "Theory-Driven Choice Models," Marketing Letters, Springer, vol. 16(3), pages 225-237, December.
- Horváth, C. & Fok, D., 2008. "Moderating Factors of Immediate, Dynamic, and Long-run Cross-Price Effects," ERIM Report Series Research in Management ERS-2008-042-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
- van Nierop, J.E.M. & Paap, R. & Bronnenberg, B. & Franses, Ph.H.B.F. & Wedel, M., 2005. "Retrieving unobserved consideration sets from household panel data," Econometric Institute Research Papers EI 2005-49, Erasmus University Rotterdam, Erasmus School of Economics (ESE), Econometric Institute.
- Joseph Pancras, 2010. "A Framework to Determine the Value of Consumer Consideration Set Information for Firm Pricing Strategies," Computational Economics, Society for Computational Economics, vol. 35(3), pages 269-300, March.
- Andrew Ching & Fumiko Hayashi, 2006.
"Payment card rewards programs and consumer payment choice,"
Payments System Research Working Paper
PSR WP 06-02, Federal Reserve Bank of Kansas City.
- Ching, Andrew T. & Hayashi, Fumiko, 2010. "Payment card rewards programs and consumer payment choice," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1773-1787, August.
- Ching, Andrew & Hayashi, Fumiko, 2008. "Payment Card Rewards Programs and Consumer Payment Choice," MPRA Paper 8458, University Library of Munich, Germany.
- Lemieux, James & Peterson, Robert A., 2011. "Purchase deadline as a moderator of the effects of price uncertainty on search duration," Journal of Economic Psychology, Elsevier, vol. 32(1), pages 33-44, February.
- Xin Wang & Alan Montgomery & Kannan Srinivasan, 2008. "When auction meets fixed price: a theoretical and empirical examination of buy-it-now auctions," Quantitative Marketing and Economics, Springer, vol. 6(4), pages 339-370, December.
- Bing Jing, 2007. "Product differentiation under imperfect information: When does offering a lower quality pay?," Quantitative Marketing and Economics, Springer, vol. 5(1), pages 35-61, March.
- Sergei Koulayev, 2009. "Estimating demand in search markets: the case of online hotel bookings," Working Papers 09-16, Federal Reserve Bank of Boston.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.