Consumer search in the U.S. auto industry: The role of dealership visits

• DOI: 10.1007/s11129-020-09229-4
• Publication Date: 2020-10-26T04:15:37Z
• Authors: Dan Yavorsky; Elisabeth Honka; Keith Chen
• Keywords: Geolocation; Search cost; Economic surplus; Empirical Research

In many markets, consumers visit stores and physically inspect products before making purchase decisions. We view the inspection of a product at retail location as search for fit. quantify cost benefit from searching fit using discrete choice model demand with optimal sequential search. these models, is measured by standard deviation has, heretofore, been fixed to one in estimation. show that, an exogenous shifter, both can be separately estimated. Our empirical setting U.S. automotive market. assemble unique data set containing individual-level smartphone geolocation that inform us about dealership visits. also obtain information on new vehicle purchases proprietary DMV registration data. shifter distance consumer must travel dealership. results provided dealerships substantial. Within our context, failure estimate leads biased surplus estimates inaccurate predictions regarding consumers' number searches effects at-home test drive programs.