A Model of Multi-pass Search: Price Search across Stores and Time

Navid Mojir and K. Sudhir ()
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Navid Mojir: Harvard Business School
K. Sudhir: Yale School of Management and Cowles Foundation

No 1942R2, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: In retail settings with price promotions, consumers often search across stores and time. However the search literature typically only models one pass search across stores, ignoring revisits to stores; the choice literature using scanner data has modeled search across time, but not search across stores in the same model. We develop a multi-pass search model that jointly endogenizes search in both dimensions; our model nests a nite horizon model of search across stores within an in nite horizon model of inter-temporal search. We apply our model to milk purchases at grocery stores; hence the model also accounts for repeat purchases across time, inventory holding by households and grocery basket e"ects. We note that the special case without these additional features can be used to study one time purchases with repeat store visits as in the case of durable goods and online shopping. We formulate the empirical model as a mathematical program with equilibrium constraints (MPEC) and estimate it allowing for latent class heterogeneity using an iterative E-M algorithm. In contrast to extant research, we nd that omitting the temporal dimension underestimates price elasticity. We attribute this di"erence to the relative frequency of household stockouts and purchase frequency in the milk category. Interestingly, increasing the promotional frequency (while reducing its depth to maintain the mean and variance of prices across all stores) can increase loyalty to the household�s preferred store.

Keywords: Consumer Search; Multi-pass Search; Price Search; Store Search; Spatial Search; Temporal Search; Spatiotemporal Search; Dynamic Structural Models; MPEC; Price Promotions; Store Loyalty (search for similar items in EconPapers)
JEL-codes: D12 L81 M31 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-03, Revised 2020-02
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