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The impact of search costs on consumer behavior: a dynamic approach

Seiler, Stephan (2013) The impact of search costs on consumer behavior: a dynamic approach. Quantitative Marketing and Economics, 11 (2). pp. 155-203. ISSN 1570-7156

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Identification Number: 10.1007/s11129-012-9126-7

Abstract

Prices for grocery items differ across stores and time because of promotion periods. Consumers therefore have an incentive to search for the lowest prices. However, when a product is purchased infrequently, the effort to check the price every shopping trip might outweigh the benefit of spending less. I propose a structural model for storable goods that takes into account inventory holdings and search. The model is estimated using data on laundry detergent purchases. I find search costs play a large role in explaining purchase behavior, with consumers unaware of the price of detergent on 70 % of their shopping trips. Therefore, from the retailer's point of view raising awareness of a promotion through advertising and displays is important. I also find a promotion for a particular product increases the consumer's incentive to search. This change in incentives leads to an increase in category traffic, which from the store manager's perspective is a desirable side effect of the promotion.

Item Type: Article
Official URL: http://link.springer.com/journal/11129
Additional Information: © 2012 Springer Science+Business Media, LLC
Divisions: Centre for Economic Performance
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HF Commerce
JEL classification: D - Microeconomics > D1 - Household Behavior and Family Economics > D12 - Consumer Economics: Empirical Analysis
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Date Deposited: 13 Sep 2013 08:16
Last Modified: 20 Nov 2020 02:11
URI: http://eprints.lse.ac.uk/id/eprint/52553

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