Empirical Studies of Search Frictions and Consumer Choices

Chapter one, entitled Identification of Search Behavior Using Choice Data, tests whether consumers follow sequential or fixed sample size search strategies. I develop a methodology that requires only choice data for identifying the search strategy. Using household panel data on shopping trips and purchases of liquid laundry detergent, I find empirical evidence in favor of a fixed sample size search strategy over a sequential search strategy.;Chapter two, entitled Consideration Sets in Storable Goods Markets, evaluates the biases created by ignoring consideration sets and studies the interaction between consumer inventory and consideration sets. To perform the analysis, I propose and estimate a dynamic choice model with consideration sets. I use the demand estimates to evaluate the direct and strategic effects that arise from firms employing marketing devices to influence consideration sets. Using data for liquid laundry detergent, a storable good, I find evidence for consideration sets driven by search costs. I show that using a storable good allows me to identify the existence of consideration sets from choice data. I find that assuming full information and a static model leads to incorrect conclusions regarding the intensity of competition. Finally, I find that firms can use instruments to influence consideration sets. In particular, firms can use displays and advertising to reduce a product search cost and encourage consumers to search that product. The use of these instruments creates important strategic effects.;Chapter three, entitled Measuring the Effects of Search Costs on Equilibrium Prices and Profits, assesses the effects of marginal search costs on equilibrium prices and profits. My empirical strategy uses data on purchases of liquid laundry detergent and combines a "front-end" estimation of the demand and cost parameters with a "back-end" analysis to evaluate the equilibrium prices and profits with respect to marginal search costs. I find that the profits of some firms initially rise and then fall for larger marginal search costs. Nonetheless, the magnitude and direction of the effects of marginal search costs on equilibrium prices and profits are heterogeneous, because marginal search costs create different incentives that may work in opposite directions.