Flexible Demand Estimation with Search Data

31 Pages Posted: 4 Aug 2018 Last revised: 26 May 2022

See all articles by Tomomichi Amano

Tomomichi Amano

Harvard University - Business School (HBS)

Andrew Rhodes

University of Toulouse 1 - Toulouse School of Economics (TSE)

Stephan Seiler

Imperial College Business School; Centre for Economic Policy Research

Date Written: May 25, 2022

Abstract

Traditional methods for estimating demand are not always well-suited to online markets, where individual products are sold infrequently, unobserved factors such as webpage layout drive substitution, and often only a limited set of product characteristics is observed. We propose a demand model where browsing data—which is abundant in many online settings— is used to infer individual consumers' consideration sets. In our model, the underlying variables which drive consideration can be correlated arbitrarily across products. We estimate the model through a constraint maximization approach, based on the insight that these correlations should rationalize the product-pair co-search frequencies that are observed in the data. In turn, these correlations make it possible to estimate more flexible substitution patterns. We apply the model to data from an online retailer, recover the elasticity matrix, and solve for optimal prices.

Keywords: Demand Estimation, Consideration Sets, Consumer Search

JEL Classification: D12, D83, M31

Suggested Citation

Amano, Tomomichi and Rhodes, Andrew and Seiler, Stephan, Flexible Demand Estimation with Search Data (May 25, 2022). Available at SSRN: https://ssrn.com/abstract=3214812 or http://dx.doi.org/10.2139/ssrn.3214812

Tomomichi Amano

Harvard University - Business School (HBS) ( email )

Soldiers Field Road
Boston, MA 02163
United States

Andrew Rhodes

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Stephan Seiler (Contact Author)

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research ( email )

London
United Kingdom

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