Simultaneous or Sequential? Search Strategies in the U.S. Auto Insurance Industry
University of Texas at Dallas - Naveen Jindal School of Management
Pradeep K. Chintagunta
University of Chicago
May 12, 2015
We show that the search method consumers use when resolving uncertainty in the prices of alternatives is identified in data where consumers' consideration sets (but not the sequence of searches), prices for the considered alternatives and market-wide price distributions are observed. The search method is non-parametrically 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; complementing 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 information 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 consideration set and purchase market shares of the largest insurance companies are overpredicted under the incorrect assumption of sequential search. 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
Date posted: October 27, 2013 ; Last revised: May 13, 2015
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