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Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market

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  • Castilla, Carolina
  • Haab, Timothy C.

Abstract

Price search enables consumers to overcome information asymmetries, it can lead to a reduction in price dispersion and it can increase consumer surplus, but search is costly. In this paper, an internet survey is conducted among a random sample of 490 drivers in the State of Ohio to answer the question, when are consumers more likely to search? The internet survey affords us the opportunity to impose exogenous price changes in a random sample of gasoline consumers to examine the decision-making process behind intended search decisions. Results indicate that among the respondents who faced prices below their expected price, only 12% chose to search, whereas 45% searched when prices were above. Results suggest that asymmetric search can be explained by prospect theory, in the sense that consumers evaluate current prices compared to a reference price, and as a consequence they value price increases differently from price decreases. Our findings indicate that in the gasoline retail market, consumers are allowing retailers to extract consumer surplus by exhibiting loss aversion because this behavior deters search when the probability of finding a lower price is highest.

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Bibliographic Info

Paper provided by Agricultural and Applied Economics Association in its series 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado with number 61672.

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Date of creation: 2010
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Handle: RePEc:ags:aaea10:61672

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Related research

Keywords: price search; choice experiment; search cost; gasoline market; Consumer/Household Economics; Demand and Price Analysis; D83; D03;

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References

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  1. Deck, Cary A. & Wilson, Bart J., 2008. "Experimental gasoline markets," Journal of Economic Behavior & Organization, Elsevier, vol. 67(1), pages 134-149, July.
  2. Matthew Lewis, 2008. "PRICE DISPERSION AND COMPETITION WITH DIFFERENTIATED SELLERS -super-* ," Journal of Industrial Economics, Wiley Blackwell, vol. 56(3), pages 654-678, 09.
  3. Huanxing Yang & Lixin Ye, 2008. "Search with learning: understanding asymmetric price adjustments," RAND Journal of Economics, RAND Corporation, vol. 39(2), pages 547-564.
  4. Babur De los Santos, 2008. "Consumer Search on the Internet," Working Papers 08-15, NET Institute, revised Sep 2008.
  5. Matthew S. Lewis & Howard P. Marvel, 2011. "When Do Consumers Search?," Journal of Industrial Economics, Wiley Blackwell, vol. 59(3), pages 457-483, 09.
  6. Mariano Tappata, 2009. "Rockets and feathers: Understanding asymmetric pricing," RAND Journal of Economics, RAND Corporation, vol. 40(4), pages 673-687.
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Cited by:
  1. Dewenter, Ralf & Heimeshoff, Ulrich, 2012. "Less pain at the pump? The effects of regulatory interventions in retail gasoline markets," DICE Discussion Papers 51, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).

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