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Title:Estimating demand in search markets: The case of online hotel bookings PDF Logo
Authors:Koulayev, Sergei
Issue Date:2009
Series/Report no.:Working paper series // Federal Reserve Bank of Boston 09-16
Abstract:In this paper, we emphasize that choice sets generated by a search process have two properties: first, they are limited; second, they are endogenous to preferences. Both factors lead to biased estimates in a static demand framework that takes choice sets as given. To correct for this bias, we estimate a structural model of search for differentiated products, using a unique dataset of consumer online search for hotels. Within a nested logit utility model, we show that the mean utility function and the search cost distribution of a representative consumer are non-parametrically identified, given our data. Using our model's estimates, we quantify both sources of bias: they lead to overestimation of price elasticity by a factor of five and four, respectively. The median search cost is about 38 dollars per 15 hotels; we also present some evidence on multi-modality of search cost distribution.
JEL:C14
D43
D83
L13
Document Type:Working Paper
Appears in Collections:Working Paper Series, Federal Reserve Bank of Boston

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