Estimating demand in search markets: the case of online hotel bookings

Sergei Koulayev ()

No 09-16, Working Papers from Federal Reserve Bank of Boston

Abstract: In this paper, we emphasize that choice sets generated by a search process have two properties: first, they are limited; second, they are endogenous to preferences. Both factors lead to biased estimates in a static demand framework that takes choice sets as given. To correct for this bias, we estimate a structural model of search for differentiated products, using a unique dataset of consumer online search for hotels. Within a nested logit utility model, we show that the mean utility function and the search cost distribution of a representative consumer are non-parametrically identified, given our data. Using our model's estimates, we quantify both sources of bias: they lead to overestimation of price elasticity by a factor of five and four, respectively. The median search cost is about 38 dollars per 15 hotels; we also present some evidence on multi-modality of search cost distribution.

Keywords: Consumer behavior; Consumers' preferences; Electronic commerce (search for similar items in EconPapers)
Date: 2009
New Economics Papers: this item is included in nep-dcm and nep-mkt
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Citations: View citations in EconPapers (12)

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