Abstract

http://ssrn.com/abstract=2345449
 


 



Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry


Elisabeth Honka


University of Texas at Dallas - Naveen Jindal School of Management

Pradeep K. Chintagunta


University of Chicago

April 29, 2014


Abstract:     
We show that the search method consumers use when resolving uncertainty in the prices of alter- natives is identified in data where consumers’ consideration sets (but not sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. The search method is identified by different patterns of actual prices in consumers’ consideration sets across search methods. We also provide a new estimation approach for the sequential search model; com- plementing earlier work that has estimated a simultaneous search model with such data. Using a novel data set on consumer shopping behavior in the U.S. auto insurance industry that contains in- formation on consideration sets and choices, we find that the pattern of actual prices in consumers’ consideration sets are consistent with consumers searching simultaneously. Our counterfactuals show that the largest insurance companies are better off in terms of market share when consumers search sequentially, while smaller companies benefit from consumers searching simultaneously. The results regarding the composition of the customer base are mixed. As the search method affects consumers’ consideration sets, which in turn influence brand choices, understanding the nature of consumer search and its implications for consideration and choice is important from a managerial perspective.

Number of Pages in PDF File: 56

Keywords: Consumer Search, Simultaneous Search, Sequential Search, Auto Insurance

JEL Classification: D43, D83, L13

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Date posted: October 27, 2013 ; Last revised: May 1, 2014

Suggested Citation

Honka, Elisabeth and Chintagunta, Pradeep K., Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry (April 29, 2014). Available at SSRN: http://ssrn.com/abstract=2345449 or http://dx.doi.org/10.2139/ssrn.2345449

Contact Information

Elisabeth Honka (Contact Author)
University of Texas at Dallas - Naveen Jindal School of Management ( email )
P.O. Box 830688
Richardson, TX 75083-0688
United States
Pradeep K. Chintagunta
University of Chicago ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-8015 (Phone)
773-702-0458 (Fax)
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