A Direct Utility Model for Access Costs and Economies of Scope

Dong Soo Kim (), Sanghak Lee (), Taegyu Hur (), Jaehwan Kim () and Greg M. Allenby ()
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Dong Soo Kim: Department of Marketing and Logistics, Fisher College of Business, Ohio State University, Columbus, Ohio 43210
Sanghak Lee: Department of Marketing, W. P. Carey School of Business, Arizona State University, Tempe, Arizona 85287
Taegyu Hur: Department of Marketing, Ivy College of Business, Iowa State University, Ames, Iowa 50011
Jaehwan Kim: Korea University Business School, Korea University, Seoul 02841, South Korea
Greg M. Allenby: Department of Marketing and Logistics, Fisher College of Business, Ohio State University, Columbus, Ohio 43210

Management Science, 2024, vol. 70, issue 6, 3398-3416

Abstract: Consumers encounter costs and inconvenience in the purchase and consumption of goods. Time, effort, training, and expertise, also referred to as access costs, are examples of factors that constrain the ability of consumers to derive utility from offerings beyond the price of a good. Economies of scope exist when household production of these factors share commonalities among choice alternatives, making it more likely that some products would be purchased and consumed in conjunction with others. For example, consumers planning out-of-town travel might consider visiting multiple tourist attractions during their trip, and course offerings might appeal more to students who are already in the mindset of taking courses. We develop a model with economies of scope that captures a leveraging effect where the purchase of one good makes the purchase of other goods more likely. Our model offers an alternative explanation of complementary purchases that are driven by cost reductions rather than utility enhancements. The model is applied to four conjoint datasets where we find that economies of scope and access costs play an important role in consumer purchases and have high economic value relative to the role played by price.

Keywords: budget constraint; time costs; cross-selling (search for similar items in EconPapers)
Date: 2024
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