An Empirical Investigation of Returns to Search

Using data on search and choice behavior from a local automobile market, we estimate monetary returns to search in terms of lower prices resulting from additional time invested in price search. For our analytical framework, we adapt a model developed in the job search literature to the problem of consumer search; this framework is especially useful for illuminating the relationship between time spent searching, the outcome of search, and demand and supply side variables. Our results indicate that, for this particular sample of buyers, marginal returns to search are broadly consistent with what one might expect if consumers balance costs and benefits of search, and that potential gains from additional search for lower car prices do not appear to be large for most consumers. Our study highlights many of the methodological difficulties involved in estimating returns to search, including isolating returns to different outcomes of search, and sensitivity of results to model specification and sampling error. We deal with these problems by trying to isolate time spent searching for price from other uses of search time, by deriving our model used in estimation from a specific conceptual framework, and by extensive specification testing.