Semi/nonparametric estimation of consumer search costs

This paper studies the estimation of the cost of non-sequential search. We provide a new method based on semi-nonparametric (SNP) estimation that allows us to pool price data from different consumer markets with the same underlying search cost distribution but di erent valuations or selling costs. We show that pooling data from di erent markets increases the number of estimated critical search cost cuto s at all quantiles of the search cost distribution, which increases the precision of the estimates. A Monte Carlo study shows that the method works well in small samples. We apply our method to a data set of online prices for memory chips and nd that the search cost density is essentially bimodal such that a large fraction of consumers searches very little, while a smaller fraction of consumers samples a relatively large number of stores.

[1]  A. Wald.  Note on the Consistency of the Maximum Likelihood Estimate , 1949 .

[2]  T. Koopmans,et al.  The Identification of Structural Characteristics , 1950 .

[3]  R. Bellman.  An Optimal Search , 1963 .

[4]  B. Hoadley.  Asymptotic Properties of Maximum Likelihood Estimators for the Independent Not Identically Distributed Case , 1971 .

[5]  P. Diamond.  A model of price adjustment , 1971 .

[6]  Manfred Kochen,et al.  On the economics of information , 1972, J. Am. Soc. Inf. Sci..

[7]  H. Varian.  A Model of Sales , 1980 .

[8]  R. MacMinn,et al.  Search and Market Equilibrium , 1980, Journal of Political Economy.

[9]  Peter B. Morgan,et al.  Search and Consumer Theory , 1982 .

[10]  K. Judd,et al.  EQUILIBRIUM PRICE DISPERSION , 1983 .

[11]  A. Wolinsky.  Product Differentiation with Imperfect Information , 1984 .

[12]  A. Gallant,et al.  Semi-nonparametric Maximum Likelihood Estimation , 1987 .

[13]  Rosa L. Matzkin.  Nonparametric and Distribution-Free Estimation of the Binary Choice and the Threshold-Crossing Models , 1988 .

[14]  Dale O. Stahl,et al.  Oligopolistic Pricing with Sequential Consumer Search , 1989 .

[15]  George Hendrikse,et al.  The Theory of Industrial Organization , 1989 .

[16]  Ming-Deh A. Huang,et al.  Proof of proposition 2 , 1992 .

[17]  Harry J. Paarsch,et al.  Piecewise Pseudo-maximum Likelihood Estimation in Empirical Models of Auctions , 1993 .

[18]  Rosa L. Matzkin.  Nonparametric and Distribution-Free Estimation of the Binary Threshold Crossing and the Binary Choice Models , 1992 .

[19]  Rosa L. Matzkin.  Nonparametric identification and estimation of polychotomous choice models , 1993 .

[20]  H. Bester.  Price Commitment in Search Markets , 1994 .

[21]  A. Ronald Gallant,et al.  Qualitative and asymptotic performance of SNP density estimators , 1996 .

[22]  J. Bakos.  Reducing buyer search costs: implications for electronic marketplaces , 1997 .

[23]  Donald W. K. Andrews,et al.  A Conditional Kolmogorov Test , 1997 .

[24]  Simon P. Anderson,et al.  Consumer Information and Firm Pricing: Negative Externalities from Improved Information , 2000 .

[25]  H. Ichimura,et al.  Maximum likelihood estimation of a binary choice model with random coefficients of unknown distribution , 1998 .

[26]  G. Ridder,et al.  Semi-nonparametric Estimation of an Equilibrium Search Model. , 2000 .

[27]  Dale T. Mortensen,et al.  Wage Differentials, Employer Size, and Unemployment , 1998 .

[28]  Erik Brynjolfsson,et al.  Frictionless Commerce? A Comparison of Internet and Conventional Retailers , 2000 .

[29]  R. Lal,et al.  When and How is the Internet Likely to Decrease Price Competition , 1999 .

[30]  Matthew Shum,et al.  Nonparametric Tests for Common Values , 2000 .

[31]  Ruud H Koning,et al.  Testing the Normality Assumption in the Sample Selection Model With an Application to Travel Demand , 2000 .

[32]  Daron Acemoglu,et al.  Wage and Technology Dispersion , 2000 .

[33]  Cross Validated Snp Density Estimates , 2000 .

[34]  X. Gong,et al.  A structural labour supply model with flexible preferences , 2002 .

[35]  M. Janssen,et al.  Strategic Pricing, Consumer Search and the Number of Firms , 2004 .

[36]  Ali Hortaçsu,et al.  Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds , 2003 .

[37]  Han Hong,et al.  Nonparametric Tests for Common Values at First-Price Sealed-Bid Auctions , 2003 .

[38]  Maarten C. W. Janssen,et al.  Strategic Pricing, Consumer Search and the Number of Firms , 2004 .

[39]  Procurement via Sequential Search , 2005, Journal of Political Economy.

[40]  Bjarne Brendstrup,et al.  Identification and estimation in sequential, asymmetric, English auctions , 2006 .

[41]  Michael R. Baye,et al.  Information, Search, and Price Dispersion , 2006 .

[42]  Stephanie Houghton,et al.  Bidding for Incomplete Contracts: An Empirical Analysis , 2006 .

[43]  Han Hong,et al.  Using price distributions to estimate search costs , 2006 .

[44]  Mariano Tappata.  Rockets and Feathers: Understanding Asymmetric Pricing , 2008 .

[45]  Matthew S. Lewis.  Price Dispersion and Competition with Differentiated Sellers , 2008 .

[46]  Matthijs R. Wildenbeest,et al.  Maximum Likelihood Estimation of Search Costs , 2006 .

[47]  Ali Hortacsu,et al.  Testing Models of Consumer Search using Data on Web Browsing and Purchasing Behavior , 2009 .

[48]  Steven Berry,et al.  Nonparametric Identi cation of Multinomial Choice Demand Models with Heterogeneous Consumers , 2008 .

[49]  Nonsequential search equilibrium with search cost heterogeneity , 2010 .

[50]  Yingyao Hu,et al.  Estimating first-price auctions with an unknown number of bidders: A misclassification approach , 2010 .

[51]  Bart J. Bronnenberg,et al.  Online Demand Under Limited Consumer Search , 2009, Mark. Sci..

[52]  Matthijs R. Wildenbeest,et al.  An empirical model of search with vertically differentiated products , 2011 .

[53]  Z. Sándor,et al.  Supplement to ‘ Semi-Nonparametric Estimation of Consumer Search Costs ’ ∗ , 2012 .

[54]  M. Backus,et al.  Search Costs and Equilibrium Price Dispersion in Auction Markets , 2014 .

[55]  Vladimir Yankov.  In Search of a Risk-Free Asset , 2014 .

[56]  Jason R. Blevins,et al.  Dynamic Selection and Distributional Bounds on Search Costs in Dynamic Unit-Demand Models , 2014 .