Inference of Consumer Consideration Sets

Anna Lu

No 1681, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research

Abstract: When consumers face a large number of alternatives, they tend to simplify the decision problem by reducing the number of available alternatives to a subset of relevant alternatives, i.e. a consideration set. Since consideration sets are typically unobserved, most studies in the demand literature have to assume a consideration model. If these consideration models are misspecified, the demand estimates can be biased. In this paper, we develop an approach to formally test any two competing models of consideration against one another in order to determine which model fits the data best. Our test follows the intuition of a menu approach and uses supplemental data on marginal cost-shifters to construct overidentifying restrictions. We show an application to German retailing of coffee and milk. We find that consideration sets are fundamentally different for coffee and milk, and relate our findings to differences in demand and supply conditions of the two product categories.

Keywords: Demand Estimation; Consideration Set; Retailing (search for similar items in EconPapers)
JEL-codes: D12 L13 M31 (search for similar items in EconPapers)
Pages: 48 p.
Date: 2017
New Economics Papers: this item is included in nep-com and nep-mkt
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Citations: View citations in EconPapers (2)

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