You Can Lead a Horse to Water: Spatial Learning and Path Dependence in Consumer Search

Charles Hodgson () and Gregory Lewis
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Charles Hodgson: Cowles Foundation, Yale University, https://economics.yale.edu/people/faculty/charles-hodgson
Gregory Lewis: Microsoft Research

No 2246, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We develop a model of consumer search with spatial learning in which sampling the payoff of one product causes consumers to update their beliefs about the payoffs of other products that are nearby in attribute space. Spatial learning gives rise to path dependence, as each new search decision depends on past experiences through the updating process. We present evidence of spatial learning in data that records online search for digital cameras. Consumers' search paths tend to converge to the chosen product in attribute space, and consumers take larger steps away from rarely purchased products. We estimate the structural parameters of the model and show that these patterns can be rationalized by our model, but not by a model without spatial learning. Eliminating spatial learning reduces consumer welfare by 12%: cross-product inferences allow consumers to locate better products in a shorter time. Spatial learning has important implications for the power of search intermediaries. We use simulations to show that consumer-optimal product recommendations are that are most informative about other products.

Keywords: Consumer search; Platforms; Online markets; Industrial organization (search for similar items in EconPapers)
JEL-codes: D12 L0 L81 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2020-08
New Economics Papers: this item is included in nep-com, nep-mic, nep-ore and nep-ure
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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