Inattention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search

29 Pages Posted: 14 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: July 1, 2010

Abstract

We use a choice experiment on gasoline consumers to investigate whether respondents exhibit limited attention to the way different costs enter their search decision. The search cost is a function of the amount of gasoline consumed while driving and the time spent searching for the lowest price. The gasoline used to drive is a disbursement the consumer has made in the past, whereas the time spent searching is a cost that is incurred at the time of search. We randomize the amount of information we provide respondents about search costs in one of 3 ways: (1) time, (2) gasoline spent driving or (3) both. The results indicate that consumers exhibit inattention, leading them to overestimate the cost of the gasoline used while driving, which in turn results in consumers not searching when the expected gains from search exceed the costs, forgoing consumer surplus. The differences in the magnitude of the effect of inattention to time costs, however, can be attributed to cognitive costs of computing the value of the amount of time it takes to drive one mile; it is stronger among consumers that were not reminded of either search cost.

Keywords: Price Search, Choice Experiment, Search Cost, Gasoline Market, Salience, Limited Attention

JEL Classification: D83, D03

Suggested Citation

Castilla, Carolina and Haab, Timothy C., Inattention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search (July 1, 2010). Available at SSRN: https://ssrn.com/abstract=1658912 or http://dx.doi.org/10.2139/ssrn.1658912

Carolina Castilla (Contact Author)

Colgate University - Department of Economics ( email )

13 Oak Drive
Hamilton, NY 13346
United States

Timothy C. Haab

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

2120 Fyffe Rd
Columbus, OH 43210-1067
United States

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