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Models of Consumer Search June 10, 2007

Posted by jyu in Qualifying.

(1) Stigler (1961)

–Searcher sets the # of items to be searched as the # at which expected gains from an additional search are equal to the expected cost of that search.  Assume equal priors on alternatives and search of an item yields a complete understanding of that item.

(2) Weitzman (1979)

–More general case in which the consumer may have different priors across alternatives and consumer can search sequentially

–Assumptions: (a) expected utility maximization (b) search of an item uncovers all info about it (c) there is recall (d) there is no parallel search (e) there are no joint costs of search in which several alternatives can be inspected for the price of one.

–Propsed the optimality of a stopping rule: Alternatives are searched in order of their reservation utility.  Stop searching if the payoff exceeds the reservation utility of the next best alternative.  Consumer searches the alternative that is next in the ranking and repeats the process until an alternative that meets the stopping criterion

(3) Moorthy, Ratchford, Talukdar (1997)

–Applied Weitzman model and show that prior brand perceptions can create the inverted U-shaped relationship between knowledge and search

(4) Landaster (1985) and Jones (1988)

–Model search for a job and the duration of unemployement using hazard model

(5) Ratchford and Srinivasan (1993)

–Model the duration of search for an automobile.  Have price offers arriving at a constant rate, with the distribution of price offers following a pareto distribution. The hazard is the product of the arrival rate and the probability that an offer exceeds the reservation price.

–The observed outcomes of prices paid and time devoted to search result from two equations: (a) determines the level and rate of arrival of offers, which depends on seller characteristics and the consumer’s efficiency at search (b) determines the reservation price that depends on the same factors plus the cost of search per unit of time

–These equations can be employed in estimating the determinants of observed prices and search time, and in calculating monetary returns to additional search time

(6) Erdem and Keane (1996), Erdem, Imai, Keane (2003), Mehta, Rajiv, Srinivasan (2003)

–Bayesian learning of brand attributes through consumption

(7) Erdem, Keane, Oncu and Strebel (2005)

–Structural approach has been applied to consumer search prior to purchase

–Use a panel dataset that tracks a smaple of potential computer buyers from early in their search to purchase, the author simultaneously model gathering information from retailers and the final choice of a computer

–The panel has six waves in which respondents report their sources that they consulted, their quality perceptions of the competing brands, thier price expectations, and if applicable, their choice.

–Respondents are assumed to follow a Bayesian updating process for incorporating quality information from five information sources.

–An optimizing model of search: (a) each consumer optimizes the choice of 5 information source over the 6 periods of the panel (b) optimizes the timing of the choice given price expectations (c) optimizes the make and quality level of computer chosen



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