A Concise Test of Rational Consumer Search

Posted: 3 Oct 2018 Last revised: 21 Feb 2019

See all articles by Chloe Lee

Chloe Lee

Federal Reserve Banks - Federal Reserve Bank of Boston

María José Luengo‐Prado

Federal Reserve Banks - Federal Reserve Bank of Boston

Bent E. Sørensen

University of Houston - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: 2018-06-18

Abstract

A simple model of time allocation between work and price-search predicts that consumers spend relatively more time searching for better prices for goods of which they consume relatively more. Using scanner data, we confirm empirically that consumers pay lower (higher) prices for goods that they buy more (less) of than other consumers. Our results are conservative, because we compare goods that are defined as narrowly as possible by UPC codes, and provide a lower bound for the savings obtained from bargain hunting.

Keywords: consumption, consumer search, time use

JEL Classification: D12, E21

Suggested Citation

Lee, Chloe and Luengo-Prado, Maria Jose and Sorensen, Bent E., A Concise Test of Rational Consumer Search (2018-06-18). FRB of Boston Working Paper No. 18-4. Available at SSRN: https://ssrn.com/abstract=3259740

Chloe Lee (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Boston

Maria Jose Luengo-Prado

Federal Reserve Banks - Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

Bent E. Sorensen

University of Houston - Department of Economics ( email )

204 McElhinney Hall
Houston, TX 77204-5882
United States
713-743-3841 (Phone)
713-743-3798 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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