Search Cost Estimation and Search without Priors

The classic search models propose that all consumers adhere to particular method of search and that they know the true price distribution. Both assumptions may be violated in many market settings. The paper presented in this ZEW Research Seminar evaluates whether the search cost estimates from these models nevertheless predict search outcomes (the amount of search and purchase prices). To this end, they conduct an online search experiment in which the authors vary the distribution over prices and searchers’ knowledge about the price distribution. They find that neither the pure sequential nor the pure non-sequential search model is consistent with subjects’ average search behavior since there is both recall and price-dependence of search. However, both models predict search outcomes in-sample and out-of-sample reasonably well. This holds regardless of searchers’ information about the price distribution.