Consumer Search in the U.S. Auto Industry: The Role of Dealership Visits

69 Pages Posted: 1 Jan 2020 Last revised: 31 Aug 2020

See all articles by Dan Yavorsky

Dan Yavorsky

University of California, Los Angeles (UCLA) - Anderson School of Management

Elisabeth Honka

University of California, Los Angeles (UCLA) - Anderson School of Management

M. Keith Chen

University of California, Los Angeles (UCLA) - Anderson School of Management

Date Written: August 28, 2020

Abstract

In many markets, consumers visit stores and physically inspect products before making purchase decisions. We view the inspection of a product at a retail location as a search for product fit. We quantify the cost and benefit from searching for product fit using a discrete choice model of demand with optimal sequential search. In these models, the benefit of searching is measured by the standard deviation of the product fit and has, heretofore, been fixed to one in estimation. We show that, with an exogenous search cost shifter, both the cost and benefit of searching can be separately estimated. Our empirical setting is the U.S. automotive market. We assemble a unique data set containing individual-level smartphone geolocation data that inform us about dealership visits. We also obtain information on new vehicle purchases from proprietary DMV registration data. Our exogenous cost shifter is the distance a consumer must travel to visit a dealership. Our results show that the benefit provided by dealerships to consumers is substantial. Within our empirical context, failure to estimate the standard deviation of the product fit leads to biased search cost and consumer surplus estimates and to inaccurate predictions regarding consumers' number of searches and effects of at-home test drive programs.

Keywords: Consumer Search, Automotive Industry

JEL Classification: D83, L62, M31

Suggested Citation

Yavorsky, Dan and Honka, Elisabeth and Chen, Keith, Consumer Search in the U.S. Auto Industry: The Role of Dealership Visits (August 28, 2020). Available at SSRN: https://ssrn.com/abstract=3499305 or http://dx.doi.org/10.2139/ssrn.3499305

Dan Yavorsky

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States
951-201-0927 (Phone)

HOME PAGE: http://www.danyavorsky.com

Elisabeth Honka (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Keith Chen

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

HOME PAGE: http://www.anderson.ucla.edu/faculty/keith.chen/index.html

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