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

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Author Info

  • Babur De los Santos

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

  • Ali Hortacsu

    (University of Chicago and NBER)

  • Matthijs R. Wildenbeest

    (Department of Business Economics and Public Policy, Indiana University Kelley School of Business)

Abstract

Using a large data set on web browsing and purchasing behavior we test to what extent consumers are searching in accordance to various classical search models. We nd that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data. Moreover, we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution, observed search behavior for given consumers over time is more consistent with non-sequential search than sequential search with learning. Our ndings suggest non-sequential search provides a more accurate description of observed consumer search behavior. We then utilize the non-sequential search model to estimate the price elasticities and markups of online book retailers.

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Bibliographic Info

Paper provided by Indiana University, Kelley School of Business, Department of Business Economics and Public Policy in its series Working Papers with number 2009-05.

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Date of creation: Apr 2009
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Handle: RePEc:iuk:wpaper:2009-05

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Keywords: consumer search; electronic commerce; consumer behavior;

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References

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  1. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  2. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-86, June.
  3. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
  4. Gabriel Talmain & Chien-Fu Chou, 1990. "Non-Parametric Search," Discussion Papers 92-01, University at Albany, SUNY, Department of Economics.
  5. M. L. Weitzman, 1978. "Optimal Search for the Best Alternative," Working papers 214, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Sonnemans, Joep, 1998. "Strategies of search," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 309-332, April.
  7. 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..
  8. Rosenfield, Donald B. & Shapiro, Roy D., 1981. "Optimal adaptive price search," Journal of Economic Theory, Elsevier, vol. 25(1), pages 1-20, August.
  9. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," Yale School of Management Working Papers ysm290, Yale School of Management, revised 12 Sep 2008.
  10. 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.
  11. 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.
  12. McCall, John J, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, MIT Press, vol. 84(1), pages 113-26, February.
  13. 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.
  14. 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.
  15. 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.
  16. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December.
  17. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  18. Manning, R & Morgan, Peter B, 1982. "Search and Consumer Theory," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 203-16, April.
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Cited by:
  1. Sergei Koulayev, 2009. "Estimating demand in search markets: the case of online hotel bookings," Working Papers 09-16, Federal Reserve Bank of Boston.
  2. 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.
  3. 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.
  4. 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.
  5. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.
  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. 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.
  8. Navid Mojir & Ahmed Khwaja & K. Sudhir, 2014. "Spatiotemporal Search," Cowles Foundation Discussion Papers 1942, Cowles Foundation for Research in Economics, Yale University.
  9. Sebastian Wismer, 2013. "Intermediated vs. Direct Sales and a No-Discrimination Rule," Working Papers 131, Bavarian Graduate Program in Economics (BGPE).
  10. 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.
  11. 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.
  12. 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.
  13. Andrew Caplin & Mark Dean, 2014. "Revealed Preference, Rational Inattention, and Costly Information Acquisition," NBER Working Papers 19876, National Bureau of Economic Research, Inc.
  14. 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.
  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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