A Direct Utility Model for Access Costs and Economies of Scope

Kim, Dong Soo, Sanghak Lee, Taegyu Hur, Jaehwan Kim, and Greg M. Allenby (2023) “A Direct Utility Model for Access Costs and Economies of Scope,” Management Science, forthcoming.

Posted: 25 Aug 2015 Last revised: 3 Jan 2023

See all articles by Dong Soo Kim

Dong Soo Kim

Ohio State University (OSU) - Fisher College of Business

Sanghak Lee

Arizona State University; University of Iowa - Department of Marketing

Taegyu Hur

Iowa State University; Ohio State University (OSU) - Department of Marketing and Logistics

Jaehwan Kim

Korea University Business School (KUBS)

Greg M. Allenby

Ohio State University (OSU) - Department of Marketing and Logistics

Date Written: June 30, 2021

Abstract

Consumers encounter costs and inconvenience in the purchase and consumption of goods. Time, effort, training, and expertise, also referred to as access costs, are examples of factors that constrain the ability of consumers to derive utility from offerings beyond the price of a good. Economies of scope exist when household production of these factors share commonalities among choice alternatives, making it more likely that some products would be purchased and consumed in conjunction with others. For example, consumers planning out-of-town travel might consider visiting multiple tourist attractions during their trip, and course offerings might appeal more to students who are already in the mindset of taking courses. We develop a model with economies of scope that captures a leveraging effect where the purchase of one good makes the purchase of other goods more likely. Our model offers an alternative explanation of complementary purchases that are driven by cost reductions rather than utility enhancements. The model is applied to four conjoint datasets where we find that economies of scope and access costs play an important role in consumer purchases and have high economic value relative to the role played by price.

Keywords: Budget Constraint, Time Costs, Cross-selling

JEL Classification: C25, C40, M31

Suggested Citation

Kim, Dong Soo and Lee, Sanghak and Hur, Taegyu and Kim, Jaehwan and Allenby, Greg M., A Direct Utility Model for Access Costs and Economies of Scope (June 30, 2021). Kim, Dong Soo, Sanghak Lee, Taegyu Hur, Jaehwan Kim, and Greg M. Allenby (2023) “A Direct Utility Model for Access Costs and Economies of Scope,” Management Science, forthcoming., Available at SSRN: https://ssrn.com/abstract=2649990 or http://dx.doi.org/10.2139/ssrn.2649990

Dong Soo Kim

Ohio State University (OSU) - Fisher College of Business ( email )

558 Fisher Hall
2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-313-4868 (Phone)

Sanghak Lee

Arizona State University ( email )

Tempe, AZ 85287-4106
United States
480-965-5433 (Phone)

University of Iowa - Department of Marketing ( email )

United States

Taegyu Hur

Iowa State University ( email )

613 Wallace Road
Ames, IA 50011-2063
United States

Ohio State University (OSU) - Department of Marketing and Logistics ( email )

Fisher Hall 540
2100 Neil Ave
Columbus, OH OH 43210
United States

Jaehwan Kim

Korea University Business School (KUBS) ( email )

Anam-Dong, Seongbuk-Gu
Seoul 136-701, 136701
Korea
822.3290.2603 (Phone)
822.922.7220 (Fax)

Greg M. Allenby (Contact Author)

Ohio State University (OSU) - Department of Marketing and Logistics ( email )

Fisher Hall 524
2100 Neil Ave
Columbus, OH 43210
United States

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