Consumer Experience and the Value of Search in the Online Textbook Market

This paper examines the effect of market experience on consumers’ online search and purchasing decisions. I quantify this effect by estimating consumers’ value of search in the online textbook market and how this value changes as they gain market experience. I then use these estimates to calculate the welfare gains to experience that result from changes in consumers’ expected value of search. To conduct this analysis, I collect detailed individual-level purchasing and search data on 6,000 consumers in the University of North Carolina textbook market. I use these data to estimate a demand model that incorporates limited information and costly search as a function of past market experience. Search cost estimates imply that first-year students face a median search cost of $13 in the online market relative to $1 for more experienced consumers. Consumers’ estimated returns to experience are approximately 5% of the purchase price. These results imply that policies that provide information to inexperienced consumers about market-level characteristics could significantly affect consumer and firm behavior, especially in markets with a large proportion of inexperienced consumers. ∗University of North Carolina Chapel Hill; [email protected]. I thank my advisor, Brian McManus, and committee members Gary Biglaiser, Donna Gilleskie, James Roberts, and Helen Tauchen for helpful comments and encouragement throughout the course of this research project. I also thank Chris Cronin, Babur de los Santos, Liran Einav, Glenn Ellison, Robert Hammond, Matthew Harris, J.F. Houde, Clement Joubert, Myrto Kalouptsidi, Robin Lee, Brett Matsumoto, Nick Papageorge, Klara Peter, Tiago Pires, Imke Reimers, Michelle Sovinsky, Andrew Sweeting, Chad Syverson, Matthjis Wildenbeest, Daniel Xu, and Andy Yates for their comments and suggestions. I am grateful for funding for this project provided through the Herbert Brown Mayo and Joseph Kampf Research Funds. All remaining errors are my own.