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

  • 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)

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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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
Date of revision:
Handle: RePEc:iuk:wpaper:2009-05
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  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..
  2. 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.
  3. Manning, R & Morgan, Peter B, 1982. "Search and Consumer Theory," Review of Economic Studies, Wiley Blackwell, vol. 49(2), pages 203-16, April.
  4. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  5. Rosenfield, Donald B. & Shapiro, Roy D., 1981. "Optimal adaptive price search," Journal of Economic Theory, Elsevier, vol. 25(1), pages 1-20, August.
  6. repec:rje:randje:v:37:y:2006:2:p:257-275 is not listed on IDEAS
  7. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-54, May.
  8. Schotter, Andrew & Braunstein, Yale M, 1981. "Economic Search: An Experimental Study," Economic Inquiry, Western Economic Association International, vol. 19(1), pages 1-25, January.
  9. Austan Goolsbee & Judith Chevalier, 2002. "Measuring Prices and Price Competition Online: Amazon and Barnes and Noble," NBER Working Papers 9085, National Bureau of Economic Research, Inc.
  10. Gabriel Talmain & Chien-Fu Chou, 1990. "Non-Parametric Search," Discussion Papers 92-01, University at Albany, SUNY, Department of Economics.
  11. Sonnemans, Joep, 1998. "Strategies of search," Journal of Economic Behavior & Organization, Elsevier, vol. 35(3), pages 309-332, April.
  12. Babur De los Santos, 2008. "Consumer Search on the Internet," Working Papers 08-15, NET Institute, revised Sep 2008.
  13. 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.
  14. 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.
  15. repec:tpr:qjecon:v:84:y:1970:i:1:p:113-26 is not listed on IDEAS
  16. Harrison, Glenn W & Morgan, Peter, 1990. "Search Intensity in Experiments," Economic Journal, Royal Economic Society, vol. 100(401), pages 478-86, June.
  17. Kogut, Carl A., 1990. "Consumer search behavior and sunk costs," Journal of Economic Behavior & Organization, Elsevier, vol. 14(3), pages 381-392, December.
  18. 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.
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