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Using Price Distributions to Estimate Search Costs

Author

Listed:
  • Han Hong

    (Duke University)

  • Matthew Shum

    (Johns Hopkins University)

Abstract

We show how the equilibrium restrictions implied by standard search models can be used to estimate search-cost distributions using price data alone. We consider both sequential and nonsequential search strategies, and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search-cost heterogeneity that are theoretically consistent with the search models. We illustrate the methods using online prices for several economics and statistics textbooks.

Suggested Citation

  • Han Hong & Matthew Shum, 2006. "Using Price Distributions to Estimate Search Costs," RAND Journal of Economics, The RAND Corporation, vol. 37(2), pages 257-275, Summer.
    • Handle: RePEc:rje:randje:v:37:y:2006:2:p:257-275
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    Cited by:

    1. Navid Mojir & K. Sudhir, 2014. "Price Search Across Stores and Across Time," Cowles Foundation Discussion Papers 1942, Cowles Foundation for Research in Economics, Yale University, revised Mar 2016.
    2. Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2009. "Testing Models of Consumer Search Using Data on Web Browsing Behavior," Working Papers 09-23, NET Institute, revised Aug 2009.
    3. Matthijs R. Wildenbeest, 2011. "An empirical model of search with vertically differentiated products," RAND Journal of Economics, RAND Corporation, vol. 42(4), pages 729-757, December.
    4. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    5. Andrea Pozzi, 2012. "Shopping Cost and Brand Exploration in Online Grocery," American Economic Journal: Microeconomics, American Economic Association, vol. 4(3), pages 96-120, August.
    6. 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.
    7. Jie Jennifer Zhang & Bing Jing, 2007. "The Impacts of Shopbots on Online Consumer Search," Working Papers 07-34, NET Institute, revised Sep 2007.

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