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

Author

Listed:
  • 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.

Suggested Citation

  • Babur De los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2009. "Testing Models of Consumer Search using Data on Web Browsing and Purchasing Behavior," Working Papers 2009-05, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  • Handle: RePEc:iuk:wpaper:2009-05
    as

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    File URL: http://kelley.iu.edu/riharbau/RePEc/iuk/wpaper/bepp2009-05-DelosSantos-Hortacsu-Wildenbeest.pdf
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    References listed on IDEAS

    as
    1. 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..
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    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, June.
    14. Babur De los Santos, 2008. "Consumer Search on the Internet," Working Papers 08-15, NET Institute, revised Sep 2008.
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    More about this item

    Keywords

    consumer search; electronic commerce; consumer behavior;

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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