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Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market

30 Pages Posted: 15 Aug 2010 Last revised: 22 Nov 2011

Carolina Castilla

Colgate University - Department of Economics

Timothy C. Haab

Ohio State University (OSU) - Agricultural, Environmental & Development Economics

Date Written: June 14, 2010

Abstract

We use an internet survey conducted among a random sample of 490 drivers in the State of Ohio to answer the question, “When are consumers more likely to search?” The internet survey affords us the opportunity to overcome endogeneity difficulties with market observation data by imposing exogenous price changes in a random sample of gasoline consumers to examine the decision-making process behind intended search decisions. Results indicate that among the respondents who faced prices below their expected price, only 12% chose to search, whereas 45% searched when prices were above. Results suggest that asymmetric search can be explained by prospect theory, in the sense that consumers evaluate current prices compared to a reference price, and as a consequence they value price increases differently from price decreases. Our findings indicate that in the gasoline retail market, consumers are allowing retailers to extract consumer surplus by exhibiting loss aversion because this behavior deters search when the probability of finding a lower price is highest.

Keywords: Price Search, Choice Experiment, Search Cost, Gasoline Market

JEL Classification: D83, D03

Suggested Citation

Castilla, Carolina and Haab, Timothy C., Asymmetric Search and Loss Aversion: Choice Experiment on Consumer Willingness to Search in the Gasoline Retail Market (June 14, 2010). Available at SSRN: https://ssrn.com/abstract=1658911 or http://dx.doi.org/10.2139/ssrn.1658911

Carolina Castilla (Contact Author)

Colgate University - Department of Economics ( email )

13 Oak Drive
Hamilton, NY 13346
United States

Timothy Haab

Ohio State University (OSU) - Agricultural, Environmental & Development Economics ( email )

2120 Fyffe Rd
Columbus, OH 43210-1067
United States

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