Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/107902
Authors: 
Moraga-González, José Luis
Sándor, Zsolt
Wildenbeest, Matthijs R.
Year of Publication: 
2015
Series/Report no.: 
Tinbergen Institute Discussion Paper 15-033/VII
Abstract: 
In many markets consumers have imperfect information about the utility they derive from the products that are on offer and need to visit stores to find the product that is the most preferred. This paper develops a discrete-choice model of demand with optimal consumer search. Consumers first choose which products to search; then, once they learn the utility they get from the searched products, they choose which product to buy, if any. The set of products searched is endogenous and consumer specific. Therefore imperfect substitutability across products does not only arise from variation in their characteristics but also from variation in the costs of searching them. We apply the model to the automobile industry. Our search cost estimate is highly significant and indicates that consumers conduct a limited amount of search. Estimates of own- and cross-price elasticities are lower and markups are higher than if we assume consumers have full information.
Subjects: 
consumer search
differentiated products
demand and supply
automobiles
JEL: 
C14
D83
L13
Document Type: 
Working Paper

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