Search and Consumer Theory

Abstract

A consumer faces list prices for commodities, but can buy one at a discount. Discounts vary randomly between sellers. The number of quotations sought depends on list prices, search costs and wealth. This function is homogeneous of degree zero, and, provided some sufficient conditions are satisfied, is; increasing in wealth; decreasing in search cost; independent of the list price of the discounted commodity if indirect utility is multiplicatively separable; increasing in the list price if the commodity is a necessity; increasing in the list price of substitutes. Slutsky's equation is generalized to include search.

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

“…Given an upper and lower bound on the search cost implied by the data, we calculate the midpoint of the bounds as our point estimate of the search cost. 13 We then calculate the within consumer standard deviation of the "midpoint" search cost estimates. Figure 4 displays the within-consumer standard deviation of search costs implied by the sequential vs. non-sequential models (although the "midpoint" is a somewhat arbitrary summary of the bounds, the figure does not change qualitatively if we plot the standard deviations of the 13 Since neither model allows us to calculate an upper bound on the search cost when the consumer samples and purchases from a single store, we omit these observations from our calculations.…”

“…As argued by Manning and Morgan (1982), sufficiently large economies of scale to sampling will make it optimal to sample more firms at once and stop afterwards, even if the consumer can continue sampling. Indeed, after one has gone through the hassle of finding the right book and obtaining a price quote at one online bookstore, simple copying and pasting the ISBN number to the website of another bookstore is enough to obtain an additional price quotation.…”

Discounts and consumer search behavior: The role of framing

“…Theoretical papers determine optimal search rules of a rational decision maker searching for the lowest among dispersed o¤ers in di¤erent environments (Stigler 1961;Kohn and Shavell 1974;Gastwirth 1976;Rothschild 1974;Manning and Morgan 1982;Morgan and Manning 1985). Regardless of di¤ering environmental assumptions in these papers, the optimal search rule is always based on a comparison of expected bene…ts from searching (the possibility to …nd a lower price) and the cost associated with search (e.g., shoe-leather cost).…”

Impact of search engine ownership on underlying market for goods and services

“…An ideal point utility model is well suited to depict consumer preferences among differentiated brands in a product class [6,7,9]. In this model, the utility a consumer derives from a particular brand increase as its attribute levels more closely match the consumer's idiosyncratic ideal levels on these attributes.…”

“…Typically, economists have modeled search as random where brands are randomly chosen for examination and a series of sequential decisions on whether to buy, not buy or collect more data are made. This is analogous to randomly going from store to store, catalog to catalog, or website to website, until another search generates more cost than expected benefit [6,10,11]. Alternatively, the search mechanism used in this paper identifies the individual's consumer surplus maximizing brand.…”