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This paper develops a dynamic model of consumer search that, despite placing very little structure on the dynamic problem faced by consumers, allows us to exploit intertemporal variation in within-period price and search cost distributions to estimate the population distribution from which consumers' search costs are initially drawn. We show that static approaches to estimating this distribution generally suffer from a dynamic sample selection bias because forward-looking consumers with unit demand for a good may delay their purchase in a way that depends on their individual search cost. We analyze identification of the population search cost distribution using only price data and develop estimable nonparametric upper and lower bounds on the distribution function and a nonlinear least squares estimator for parametric models. We also consider the additional identifying power of weak assumptions such as monotonicity of purchase probabilities in search costs. We apply our estimators to analyze the online market for two widely used econometrics textbooks. Our results suggest that static estimates of the search cost distribution are biased upwards, in a distributional sense, relative to the true population distribution. In a small-scale simulation study, we show that this is typical in a dynamic setting where consumers with high search costs are more likely to delay purchase than those with lower search costs.

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Hong and Shum (2006) show equilibrium restrictions in a search model can be used to identify quantiles of the search cost distribution from observed prices alone. These quantiles can be difficult to estimate in practice. This paper uses a minimum distance approach to estimate them that is easy to compute. A version of our estimator is a solution to a nonlinear least squares problem that can be straightforwardly programmed on softwares such as STATA. We show our estimator is consistent and has an asymptotic normal distribution. Its distribution can be consistently estimated by a bootstrap. Our estimator can be used to estimate the cost distribution nonparametrically on a larger support when prices from heterogeneous markets are available. We propose a two-step sieve estimator for that case. The first step estimates quantiles from each market. They are used in the second step as generated variables to perform nonparametric sieve estimation. We derive the uniform rate of convergence of the sieve estimator that can be used to quantify the errors incurred from interpolating data across markets. To illustrate we use online bookmaking odds for English football leagues' matches (as prices) and find evidence that suggests search costs for consumers have fallen following a change in the British law that allows gambling operators to advertise more widely.

1. Introduction 2. Causal and non-causal models 3. Microeconomic data structures 4. Linear models 5. ML and NLS estimation 6. GMM and systems estimation 7. Hypothesis tests 8. Specification tests and model selection 9. Semiparametric methods 10. Numerical optimization 11. Bootstrap methods 12. Simulation-based methods 13. Bayesian methods 14. Binary outcome models 15. Multinomial models 16. Tobit and selection models 17. Transition data: survival analysis 18. Mixture models and unobserved heterogeneity 19. Models of multiple hazards 20. Models of count data 21. Linear panel models: basics 22. Linear panel models: extensions 23. Nonlinear panel models 24. Stratified and clustered samples 25. Treatment evaluation 26. Measurement error models 27. Missing data and imputation A. Asymptotic theory B. Making pseudo-random draw.

This paper reviews the recent contributions on the structural estimation of search costs. We first discuss some of the theoretical and empirical literature on price disper-sion and consumer search. We then argue that optimal design of competition policy needs the development of methods to identify and estimate search costs. We finally discuss the methods that have been proposed to date and the results obtained.

This paper examines search across competing e-commerce sites. By analyzing panel data from over 10,000 Internet households and three commodity-like products (books, compact discs (CDs), and air travel services), we show that the amount of online search is actually quite limited. On average, households visit only 1.2 book sites, 1.3 CD sites, and 1.8 travel sites during a typical active month in each category. Using probabilistic models, we characterize search behavior at the individual level in terms of (1) depth of search, (2) dynamics of search, and (3) activity of search. We model an individual's tendency to search as a logarithmic process, finding that shoppers search across very few sites in a given shopping month. We extend the logarithmic model of search to allow for time-varying dynamics that may cause the consumer to evolve and, perhaps, learn to search over time. We find that for two of the three product categories studied, search propensity does not change from month to month. However, in the third product category we find mild evidence of time-varying dynamics, where search decreases over time from already low levels. Finally, we model the level of a household's shopping activity and integrate it into our model of search. The results suggest that more-active online shoppers tend also to search across more sites. This consumer characteristic largely drives the dynamics of search that can easily be mistaken as increases from experience at the individual level.

Focuses on the effect of advertising on the price of eyeglasses in the United States. Restrictions of advertising in the market for eyeglasses; Price differentials associated with advertising restrictions; Influence of advertising on consumer's knowledge. (Из Ebsco)

We show how the equilibrium restrictions implied by standard search models can be used to estimate search-cost distributions using price data alone. We consider both sequential and nonsequential search strategies, and develop estimation methodologies that exploit equilibrium restrictions to recover estimates of search-cost heterogeneity that are theoretically consistent with the search models. We illustrate the methods using online prices for several economics and statistics textbooks. Ordering information: This article can be ordered from http://gemini.econ.umd.edu/cgi-bin/rje_online.cgi?action=buy&year=2006&issue=sum&page=257&tid=30492&sc=1869P1N9 .

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 dierent valuations or selling costs. We show that pooling data from dierent markets increases the number of estimated critical search cost cutos 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.

Using data collected between August, 1999, and January, 2000, covering 399 books, we examine pricing by thirty-two online United States-based bookstores. At the aggregate level, we find that both advertising and competitive structure had the predicted effects. More competition led to lower prices and to lower price dispersion. Holding competitive structure constant, more widely advertised items also had lower prices. At the firm level, we observe considerable heterogeneity in behavior. Firms had differentiated (or attempted to differentiate) on dimensions such as brand, price, and selection. Copyright 2001 by Blackwell Publishing Ltd

It is shown that wquilibria with dispersed prices exist in environments with identical and rational agents on both sides of the market. In particular, the original Stigler model of nonsequential search often has many equilibria, some with price dispersion. Also, price dispersion holds in equilibrium in general if search is "noisy," i.e., there is some chance of learning two or more prices when an agent is looking for one price.

The Netherlands introduced a new health insurance system in January 2006, a system based on managed competition. Such a system critically hinges on consumers that search. It is for this reason we think it is important to investigate the extend to which consumers search, how they search and why they search ´or don’t search. The price dispersion observed in the insurance market after the reform suggests the number of consumers that searches is low. We set up a search model for insurance that includes the main features of the Dutch health insurance market after the reform and test the hypotheses from this model on the data.

The Netherlands introduced a new health insurance system in January 2006, a system based on managed competition. Such a system critically hinges on consumers that search. It is for this reason we think it is important to investigate the extend to which consumers search, how they search and why they search ´or don’t search. The price dispersion observed in the insurance market after the reform suggests the number of consumers that searches is low. We set up a search model for insurance that includes the main features of the Dutch health insurance market after the reform and test the hypotheses from this model on the data.

In a recent paper Hong and Shum (forthcoming) present a structural methodology to estimate search cost distributions. We extend their approach to the case of oligopoly and present a maximum likelihood estimate of the search cost distribution. We apply our method to a data set of online prices for different computer memory chips. The estimates of the search cost distribution suggest that consumers have either quite high or quite low search costs so they either search for all prices in the market or for at most three prices. According to Kolmogorov-Smirnov goodness-of-fit tests, we cannot reject the null hypothesis that the observed prices are generated by the model.

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity, an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number of firms.

The theory of search is an important young actor on the stage of economic analysis. It plays a major part in a dramatic new field, the economics of information and uncertainty. By exploiting its sequential statistical decision theoretic origins, the search theory has found success by specializing in the portrayal of a decision-maker who must acquire and use information to take rational action in an ever changing and uncertain environment. Although the search theory's specific characterizations can now be found in many arenas of applied economic analysis, most of the theory's original roles are found in the labor economics literature. This chapter reviews the search theory's performances to date in labor market analysis. In a given population of labor force participants, the steady state fractions that are unemployed are equal to the product of the average frequency and duration of unemployment spells. The data sources reveal that unemployment spells are typically frequent but short in all phases of the business cycle, although counter-cyclic increases in both frequency and duration contribute to the well-known time series behavior of unemployment rates.

This paper uses two datasets to examine price dispersion spanning a 24-year period. The first dataset permits us to compare levels of retail price dispersion in 1976 and 2000, while the second allows for a comparison of retail dispersion in 1976 with dispersion in e-tail markets in 2000. Our results indicate that price dispersion in 2000 for both retail and e-tail markets is comparable to that observed in 1976 retail markets. This suggests that, for the products in our sample, the Information Age has done little to reduce price dispersion in retail or e-tail markets.

In many markets consumers only have imprecise information about the alternatives available. Before deciding which alternative to purchase, if any, consumers search to nd their preferred products. This paper develops a discrete-choice model with optimal consumer search. Consumer choice sets are endogenous and therefore imperfect substitutability across brands does not only arise from variation in product characteristics but also from variation in the costs of searching alternative brands. We apply the model to the automobile industry using macro-level data on prices, market shares, as well as data on dealership locations and consumer demographics. Our estimate of search cost is highly signicant and indicates that consumers conduct a limited amount of search. The paper shows that accounting for search cost and its eect on generating heterogeneity in choice sets is important in explaining variability in purchase patterns.

This paper presents a nonsequential search model that allows for vertical product differen-tiation. In the unique symmetric equilibrium firms with different characteristics draw utilities from a common utility distribution. Because the firms differ in their characteristics this leads to different price distributions. The model therefore provides a theoretical rationale for explaining price dispersion as a result of quality differences and search behavior of consumers together. Us-ing the equilibrium conditions derived from the model, it is shown how to estimate search costs by maximum likelihood using only price data. A data set on prices from Dutch supermarkets reveals that the amount of search has decreased over the sampling period. Moreover, ignoring vertical product differentiation results in an overestimation of search costs.

It has been hypothesized that the online medium and the Internet lower search costs and that electronic markets are more competitive than conventional markets. This suggests that price dispersion - the distribution of prices of an item indicated by measures such as range and standard deviation - of an item with the same measured characteristics across sellers of the item at a given point in time for identical products sold by e-tailers online (on the Internet) should be smaller than it is offline, but some recent empirical evidence reveals the opposite. A study by Smith et al. (2000) speculates that this is due to heterogeneity among e-tailers in such factors as shopping convenience and consumer awareness. Based on an empirical analysis of 105 e-tailers comprising 6739 price observations for 581 items in eight product categories, we show that online price dispersion is persistent, even after controlling for e-tailer heterogeneity. Our general conclusion is that the proportion of the price dispersion explained by e-tailer characteristics is small. This evidence is contrary to the hypothesis that search costs in online markets are low, or that online markets are highly competitive. The results also show that after controlling for differences in e-tailer service quality, prices at pure play e-tailers are equal to or lower than those at bricks-and-clicks e-tailers for all categories except books and computer software.

We investigate how online price dispersion has evolved since the bursting of the Internet bubble by comparing price dispersion levels in years 2000, 2001, and 2003 and between multi-channel and pure play e-tailers. The results show that although online price dispersion declined between 2000 and 2001 when there was a shakeout in Internet retailing, it increased from 2001 to 2003, the post bubble period, in particular, for desktop computers, laptop computers, PDAs, electronics and software. The proportion of items for which price dispersion at multi-channel retailers was higher than that at pure play e-tailers, increased steadily during 2000-2003. These findings suggest that online price dispersion is persistent even as Internet markets mature.

This paper surveys the existing empirical research that uses search theory to empirically analyze labor supply questions in a structural framework, using data on individual labor market transitions and durations, wages, and individual characteristics. The starting points of the literature are the Mincerian earnings function, Heckman's classic selection model, and dynamic optimization theory. We develop a general framework for the labor market where the search for a job involves dynamic decision making under uncertainty. It can be specialized to be in agreement with most published research using labor search models. We discuss estimation, policy evaluation with the estimated model, equilibrium model versions, and the decomposition of wage variation into factors due to heterogeneity of various model determinants as well as search frictions themselves. We summarize the main empirical conclusions.

We show that the Varian model of sales with more than two firms has two types of equilibria: a unique symmetric equilibrium, and a continuum of asymmetric equilibria. In contrast, the 2-firm game has a unique equilibrium that is symmetric. For the n-firm case the asymmetric equilibria imply mixed strategies that can be ranked by first-order stochastic dominance. This enables one to rule out asymmetric equilibria on economic grounds by constructing a metagame in which both firms and consumers are players. The unique subgame perfect equilibrium of this metagame is symmetric.

In a recent paper Hong and Shum [2006. Using price distributions to estimate search costs. Rand Journal of Economics 37, 257–275] present a structural method to estimate search cost distributions. We extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs. We apply our method to a data set of online prices for different computer memory chips. The estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs. Search frictions confer a significant amount of market power to the firms: Despite more than 20 firms operating in each of the markets, we estimate price-cost margins to be around 25%. The paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax.

We generalize the model of Burdett and Judd (1983) to the case where an arbitrary finite number of firms sells a homogeneous good to buyers who have heterogeneous search costs. We show that a price dispersed symmetric Nash equilibrium always exists. Numerical results show that the behavior of prices with respect to the number of firms hinges upon the shape of the search cost distribution: when search costs are relatively concentrated (dispersed), entry of firms leads to higher (lower) average prices.

Using a large data set on consumers' web browsing and purchasing behavior we contrast various classical search models. We find that the benchmark model of sequential search with a known distributions of prices can be rejected based on the recall patterns we observe in the data. Moreover, we show that even if consumers are initially unaware of the price distribution and have to learn the price distribution, observed search behavior for given consumers over time is more consistent with non-sequential search than sequential search with learning. Our findings suggest non-sequential search provides a more accurate description of observed consumer search behavior. We then utilize the non-sequential search model to estimate the price elasticities and markups of online book retailers.

Children in households reporting the receipt of free or reduced price school meals through the National School Lunch Program (NSLP) are more likely to have negative health outcomes than eligible nonparticipants. Assessing the causal effects of the program is made difficult, however, by the presence of endogenous selection into the program and systematic misreporting of participation status. Using data from the National Health and Nutrition Examination Survey (NHANES), we extend and apply partial identification methods to account for these two identification problems in a single unifying framework. Similar to a regression discontinuity design, we introduce a new way to conceptualize the monotone instrumental variable (MIV) assumption using eligibility criteria as monotone instruments. Under relatively weak assumptions, we find evidence that receipt of free and reduced price lunches through the NSLP improves the health outcomes of children.

From automobile insurance data for Alberta over the period 1974-81, we find thatpremiums are highly correlated across driver classes in a given year, but that premiums for a given driver class are not correlated over a period of more than 5 years. Firms' relative market shares among drivers over age 25 and married males under 25 are inversely related to their deviations from the mean premiums.In these driver classes, the variance of real premiums decreases with the numberof firms in the market and increases with the real loss cost per car insured and the number of cars insured. From these results we conclude that the price dispersion in automobile insurance in Alberta is based on costly consumer search.

The identification of sellers and the discovery of their prices is given as an example of the role of the search for information in economic life.

This study seeks to establish the empirical importance of price dispersion due to costly consumer search by examining retail prices for prescription drugs. Posted prices in two geographically distinct markets are shown to vary considerably across pharmacies within the same market, even after one controls for variation due to pharmacy differences. Pharmacy heterogeneity accounts for at most one-third of the observed price dispersion. The empirical analysis hinges on the observation that consumers' incentives to price-shop depend on characteristics of the drug therapy. Cross-sectional patterns in price distributions across drugs are consistent with the predictions of a search model: prices for repeatedly purchased prescriptions (for which the expected benefits of search are highest) exhibit significant reductions in both dispersion and price-cost margins.

I. Introduction, 189.—II. Equilibria in models without learning—the case of knowledge, 191.—III. Equilibrium in models with
learning, 196.—IV. Empirically observed distributions of prices quoted by different sellers, 204.—V. Qualifications, implications,
and conclusions, 205.

We investigate the role that nonportfolio fund differentiation and information/search frictions play in creating two salient features of the mutual fund industry: the large number of funds and the sizable dispersion in fund fees. In a case study, we find that despite the financial homogeneity of S&P 500 index funds, this sector exhibits the fund proliferation and fee dispersion observed in the broader industry. We show how extra-portfolio mechanisms explain these features. These mechanisms a lso suggest an explanation for the puzzling late-1990s shift in sector assets to more expensive (and often newly entered) funds: an influx of high-information-cost novice investors. © 2004 MIT Press

This paper uses consumer search data to explain search frictions in online markets, within the context of an equilibrium search model. I use a novel dataset of consumer online browsing and purchasing behavior, which tracks all consumer search prior to each transaction. Using observed search intensities from the online book industry, I estimate search cost distributions that allow for asymmetric consumer sampling. Research on consumer search often assumes a symmetric sampling rule for analytical convenience despite its lack of realism. Search behavior in the online book industry is quite limited: in only 25 percen of the transactions did consumers visit more than one bookstore's website. The industry is characterized by a strong consumer preference for certain retailers. Accounting for unequal consumer sampling halves the search cost estimates from 1.8 to 0.9 dollars per search in the online book industry. Analysis of time spent online suggests substitution between the time consumers spend searching and the relative opportunity cost of their time. Retired people, those with lower education levels, and minorities (with the exception of Hispanics) spent significantly more time searching for a book online. There is a negative relationship between income levels and time spent searching.

Evidence is mounting that long lags and asymmetric price responses to changes in wholesale prices are characteristic of many retail markets. Although long lags are often attributed to search costs, little empirical evidence exists to support this claim. The analysis offered in this paper compares price responses in gasoline and diesel markets in 15 U.S. cities. Search costs vary across these two markets, and the evidence indicates a much faster response in the diesel market where search costs are lower. Asymmetric responses, where prices rise faster than they fall, are also evident in the data. While asymmetric responses have been attributed to oligopolistic behavior, the arguments presented in this paper point to search theory as an alternative explanation.

We provide a unified treatment of alternative models of information acquisition/transmission that have been advanced to rationalize price dispersion in online and offline markets for homogeneous products. These different frameworks -- which include sequential search, fixed sample search, and clearinghouse models -- reveal that reductions in (or the elimination of) consumer search costs need not reduce (or eliminate) price dispersion. Our treatment highlights a "duality" between search-theoretic and clearinghouse models of dispersion, and shows how auction-theoretic tools may be used to simplify (and even generalize) existing theoretical results. We conclude with an overview of the burgeoning empirical literature. The empirical evidence suggests that price dispersion in both online and offline markets is sizeable, pervasive, and persistent and does not purely stem from subtle differences in firms' products or services.

In applications of game theory to auctions, researchers assume that players choose strategies based upon a commo nly known distribution of the latent characteristics. Rational behavior, within an assumed class of distributions for the latent process, imposes testable restrictions upon the data generating process of th e equilibrium strategies. Unfortunately, the support of the distributi on of equilibrium strategies often depends upon all of the parameters o f the distribution of the latent characteristics, making the standard application of maximum likelihood estimation procedures inappropriat e. The authors present a piecewise pseudo-maximum likelihood estimator as well as the conditions for its consistency and its asymptotic distribution. Copyright 1993 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

We examine an oligopoly model where some consumers engage in costly non-sequential search to discover prices. There are three
distinct price-dispersed equilibria characterized by low, moderate and high search intensity. The effects of an increase in
the number of firms on search behaviour, expected prices, price dispersion and welfare are sensitive (i) to the equilibrium
consumers' search intensity, and (ii) to the status quo number of firms. For instance, when consumers search with low intensity,
an increase in the number of firms reduces search, does not affect expected price, leads to greater price dispersion and reduces
welfare. In contrast, when consumers search with high intensity, increased competition results in more search and lower prices
when the number of competitors in the market is low to begin with, but in less search and higher prices when the number of
competitors is large. Duopoly yields identical expected price and price dispersion but higher welfare than an infinite number
of firms.

N identical stores compete by choosing prices for a homogeneous good with constant marginal costs. Consumers search sequentially with perfect recall for the lowest price. One class of consumers, called shoppers, have zero search costs, while all other consumers have a positive search cost, c. There is a unique symmetric Nash equilibrium price distribution with the property that it changes smoothly from "marginal cost pricing" when all consumers are shoppers and/or c = 0 and "monopoly pricing" when no consumers are shoppers. Remarkably, as the number of stores increases, the Nash equilibrium becomes more monopolistic. Copyright 1989 by American Economic Association.

This paper presents general results on the existence and properties of expected-utility-maximizing search rules for problems in which searchers may choose both the number of periods in which samples are taken and the size of the sample taken in each period. These rules include fixed-sample-size rules and sequential rules as special cases. Also presented are conditions sufficient for sequential and fixed-sample-size rules to be optimal.

This paper studies estimators that make sample analogues of population orthogonality conditions close to zero. Strong consistency and asymptotic normality of such estimators is established under the assumption that the observable variables are stationary and ergodic. Since many linear and nonlinear econometric estimators reside within the class of estimators studied in this paper, a convenient summary of the large sample properties of these estimators, including some whose large sample properties have not heretofore been discussed, is provided.

A consumer faces list prices for commodities, but can buy one at a discount. Discounts vary randomly between sellers. The
number of quotations sought depends on list prices, search costs and wealth. This function is homogeneous of degree zero,
and, provided some sufficient conditions are satisfied, is; increasing in wealth; decreasing in search cost; independent of
the list price of the discounted commodity if indirect utility is multiplicatively separable; increasing in the list price
if the commodity is a necessity; increasing in the list price of substitutes. Slutsky's equation is generalized to include
search.