Does Purchase Without Search Explain Counter-Cyclic Pricing? Essays on dynamic models of consumer and firm behavior.
Basic economic theory tells us to expect that an increase in demand should lead to an increase in price. However, previous studies have found the opposite trend in the prices of seasonal goods, such as canned soup. I propose an explanation of this phenomenon: consumers are more likely to purchase without search in low demand periods, reducing the gains of temporary price reductions, and decreasing estimated price sensitivity. Purchase without search is consistent with consumers using shopping lists to make their purchase decisions before observing prices. I test this explanation using a novel dynamic, structural inventory model where consumers make decisions on whether to search, which reveals price promotions, and which products to purchase given their search decision.
Estimating this model using previous methods is a computational challenge because of the expansion of the state space required to model seasonal preferences. To overcome this challenge, I develop a cyclic-successive approximation algorithm, which removes the computational burden of adding cyclic variables to the state space of a dynamic model. I find that consumers purchase without search 61% of the time in winter, and 82% of the time in summer. This causes price elasticities that are twice as large in winter as they are in the summer. I find that the dominant cause of seasonal search is seasonal consumption preferences, rather than seasonal price variation.
|Avi Goldfarb||Committee Chair ||Professor of Marketing
|Andrew Ching||Committee Member ||Associate Professor of Marketing
Ph.D. Coordinator for Marketing
|Ron Borkovsky||Committee Member ||Assistant Professor of Marketing
- Does Purchase Without Search Explain Counter-Cyclic Pricing?; Doctoral Workshop in Applied Econometrics; 2013
- Does Purchase Without Search Explain Counter-Cyclic Pricing?; Empirical & Theoretical Symposium; 2013
Honors and Awards
|2012, 2013 ||CCMF Fellowship||Rotman School of Management, University of Toronto
|2009-present ||Doctoral Scholarship||Rotman School of Management, University of Toronto
|2013 ||AMA-Sheth Doctoral Consortium Fellow||University of Michigan
|2011 ||Initiative for Computational Economics (ICE) Sponsored Participant||University of Chicago
|2010 ||Workshop on Quantitative Marketing and Structural Econometrics Sponsored Participant,||Columbia-Duke-UCLA
|2009 ||Teaching Assistant Award for Excellence, Department of Statistics||University of Toronto
|2007-2008 || Associate Consultant||Harris Interactive
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