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A concise test of rational consumer search

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Abstract

A simple model of time allocation between work and price-search predicts that consumers spend relatively more time searching for better prices for goods of which they consume relatively more. Using scanner data, we confirm empirically that consumers pay lower (higher) prices for goods that they buy more (less) of than other consumers. Our results are conservative, because we compare goods that are defined as narrowly as possible by UPC codes, and provide a lower bound for the savings obtained from bargain hunting.

Suggested Citation

  • Chloe Lee & Maria Jose Luengo-Prado & Bent E. Sorensen, 2018. "A concise test of rational consumer search," Working Papers 18-4, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbwp:18-4
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    Cited by:

    1. Hibiki Ichiue & Maiko Koga & Tatsushi Okuda & Tatsuya Ozaki, 2019. "Households' Liquidity Constraint, Optimal Attention Allocation, and Inflation Expectations," Bank of Japan Working Paper Series 19-E-8, Bank of Japan.

    More about this item

    Keywords

    consumption; consumer search; time use;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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