The Probit Choice Model Under Sequential Search with an Application to Online Retailing

Jun B. Kim (), Paulo Albuquerque and Bart J. Bronnenberg ()
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Jun B. Kim: Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong
Bart J. Bronnenberg: Tilburg University, 5037 AB Tilburg, Netherlands; Centre for Economic Policy Research, London EC1V 0DX, United Kingdom

Management Science, 2017, vol. 63, issue 11, 3911-3929

Abstract: We develop a probit choice model under optimal sequential search and apply it to the study of aggregate demand of consumer durable goods. In our joint model of search and choice, we derive an expression for the probability of choice that obeys the full set of restrictions imposed by optimal sequential search. Estimation of our partially analytic model avoids the computation of high-dimensional integrations in the evaluation of choice probabilities, which is of particular benefit when search sets are large. We demonstrate the advantages of our approach in data experiments and apply the model to aggregate search and choice data from the camcorder product category at Amazon.com. We show that the joint use of search and choice data provides better performance in terms of inferences and predictions than using search data alone and leads to realistic estimates of consumer substitution patterns.

Keywords: optimal sequential search; discrete choice; consumer heterogeneity; aggregate demand models; information economics; market structure (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (24)

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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:63:y:2017:i:11:p:3911-3929

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