Costly search and consideration sets in storable goods markets

Tiago Pires ()
Additional contact information
Tiago Pires: University of North Carolina

Quantitative Marketing and Economics (QME), 2016, vol. 14, issue 3, No 1, 157-193

Abstract: Abstract Costly search can result in consumers restricting their attention to a subset of products–the consideration set–before making a final purchase decision. The search process is usually not observed, which creates econometric challenges. I show that inventory and the availability of different package sizes create new sources of variation to identify search costs in storable goods markets. To evaluate the importance of costly search in these markets, I estimate a dynamic choice model with search frictions using data on purchases of laundry detergent. My estimates show that consumers incur significant search costs, and ignoring costly search overestimates the own-price elasticity for products more often present in consideration sets and underestimates the elasticity of frequently excluded products. Firms employ marketing devices, such as product displays and advertising, to influence consideration sets. These devices have direct and strategic effects, which I explore using the estimates of the model. I find that using marketing devices to reduce a product’s search cost during a price promotion has modest effects on the overall category revenues, and decreases the revenues of some products.

Keywords: Search costs; Consideration set; Information; Storable goods; Dynamic discrete-choice models (search for similar items in EconPapers)
JEL-codes: D12 D83 L81 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

Downloads: (external link)
http://link.springer.com/10.1007/s11129-016-9169-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:qmktec:v:14:y:2016:i:3:d:10.1007_s11129-016-9169-2

Ordering information: This journal article can be ordered from
http://www.springer. ... ng/journal/11129/PS2

DOI: 10.1007/s11129-016-9169-2

Access Statistics for this article

Quantitative Marketing and Economics (QME) is currently edited by Pradeep Chintagunta

More articles in Quantitative Marketing and Economics (QME) from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().