Price Search Across Time and Across Stores
In response to price dispersion across stores and price promotions over time, consumers search across both stores and time, in many retail settings. Yet there is no search model in extant research that jointly endogenizes search in both dimensions. We develop a model of search across stores and across time that nests a finite horizon model of search across stores within an infinite horizon model of inter-temporal search. The model is estimated using an iterative procedure that formulates it as a mathematical program with equilibrium constraints (MPEC) embedded within an E-M algorithm to allow estimation of latent class heterogeneity. The empirical analysis uses data on household store visits and purchases in the milk category. In contrast to extant research, we find that omitting the temporal dimension underestimates price elasticity. We attribute this difference to the relative frequency of household stockouts and purchase frequency in the milk category. Interestingly, we find that for a given mean and variance in price, increasing the frequency while reducing depth of price promotions across all stores can increase share of visits and profits for consumers’ preferred store for the segment with high price sensitivity and low cross-store search cost; consumers who are most prone to search across stores and across time.
Keywords: consumer search; price search; store search; spatial search; temporal search; spatiotemporal search; dynamic structural models; MPEC; Price; Consumer Behavior;
Citation:
Mojir, Navid, and K. Sudhir. "Price Search Across Time and Across Stores." Working Paper, July 2019. View Details