Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior

Since Stigler's (1961) seminal paper, models of costly search have been at the heart of many economic models trying to explain imperfectly competitive behavior in product and labor markets. The theoretical literature typically models consumer search in two ways. Following Stigler's original model, a strand of literature assumes fixed sample size search behavior, where consumers sample a fixed number of stores and choose to buy the lowest priced alternative.1 A much larger strand of the literature, starting with McCall (1970) and Mortensen (1970), points out that consumers cannot commit to a fixed sample size search strategy in instances where the expected marginal benefit of an extra search exceeds the marginal cost. Thus, this literature argues that a sequential search model provides a better description of actual consumer search.