A Concise Test of Rational Consumer Search 
The authors conduct a novel test of rational price-search and confirm empirically that consumers allocate relatively more time (or attention) to finding better prices for goods of which they consume relatively more; that is, consumers who purchase more units than other consumers in a particular product category pay lower prices for those products. Additionally, as consumers increase their consumption in a category, they pay lower prices for those goods. The authors also find that, consistent with other studies, retirees pay relatively less for goods, wealthy individuals pay more, and generally there are large differences in the prices consumers pay on average. Better prices are mostly obtained by frequently visiting different stores.
Key Findings
- In the authors’ sample, the consumers who presumably spent the most amount of time searching for the best prices (bargain hunters) paid, on average, 7.63 percent less than the average consumer for the same goods.
- Inattentive consumers who presumably spent the least amount of time bargain hunting paid 6.67 percent more, on average, than the average consumer for the same goods.
- In the authors’ sample, bargain-hunter consumers saved twice as much, on average, on the goods of which they bought more compared with other consumers.
- Inattentive consumers pay higher prices for all goods they purchase.
Exhibits
Implications
Technology that facilitates price comparisons could potentially result in lower overall prices as rational consumers search for the best prices for their preferred goods. However, price dispersion would persist as preferences vary across consumers, and not all consumers search or pay attention to prices to the same degree.
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.