Discussion Paper Details

Please find the details for DP16574 in an easy to copy and paste format below:

Full Details   |   Bibliographic Reference

Full Details

Title: Consumer Search and Prices in the Automobile Market

Author(s): José-Luis Moraga-González, Zsolt Sándor and Matthijs Wildenbeest

Publication Date: September 2021

Keyword(s): automobiles, consumer search, Demand estimation, differentiated products and Exclusive dealing

Programme Area(s): Industrial Organization

Abstract: This paper develops a discrete choice model of demand with optimal sequential consumer search. Consumers first choose a product to search; then, once they learn the utility they get from the searched product, they choose whether to buy it or to keep searching. We characterize the search problem as a standard discrete choice problem and propose a parametric search cost distribution that generates closed-form expressions for the probability of purchasing a product. We propose a method to estimate the model that supplements aggregate product data with individual-specific data which allows for the separate identification of search costs and preferences. We estimate the model using data from the automobile industry and find that search costs have non-trivial implications for elasticities and markups. We study the effects of exclusive dealing regulation and find that firms benefit at the expense of consumers, who face higher search costs and higher prices than would be the case if multi-brand dealerships were used.

For full details and related downloads, please visit:

Bibliographic Reference

Moraga-González, J, Sándor, Z and Wildenbeest, M. 2021. 'Consumer Search and Prices in the Automobile Market'. London, Centre for Economic Policy Research.