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
April 29, 2014
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, L13working papers series
Date posted: October 27, 2013 ; Last revised: May 1, 2014
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