Abstract
We estimate a dynamic model of how consumers learn about and choose between different brands of personal computers (PCs). To estimate the model, we use a panel data set that contains the search and purchase behavior of a set of consumers who were in the market for a PC. The data includes the information sources visited each period, search durations, as well as measures of price expectations and stated attitudes toward the alternatives during the search process. Our model extends recent work on estimation of Bayesian learning models of consumer choice behavior in environments characterized by uncertainty by estimating a model of active learning—i.e., a model in which consumers make optimal sequential decisions about how much information to gather prior to making a purchase. Also, following the suggestion of Manski (2003), we use our data on price expectations to model consumers’ price expectation process, and, following the suggestion of McFadden (1989a), we incorporate the stated brand quality information into our likelihood function, rather than modeling only revealed preference data.
Our analysis sheds light on how consumer forward-looking price expectations and the process of learning about quality influence the consumer choice process. A key finding is that estimates of dynamic price elasticities of demand exceed estimates that ignore the expectations effect by roughly 50%. This occurs because our estimated expectations formation process implies that consumers expect mean reversion in price changes. This enhances the impact of a temporary price cut. Finally, while our work focuses specifically on the PC market, the modeling approach we develop here may be useful for studying a wide range of high-tech, high-involvement durable goods markets where active learning is important.
This is a preview of subscription content, log in via an institution to check access.
Similar content being viewed by others
References
Ackerberg, D. (2003). “Advertising, Learning, and Consumer Choice in Experience Good Markets: A Structural Empirical Examination.” International Economic Review 44, 1007–1040.
Anand, B. and R. Shachar. (2002). “Risk Aversion and Apparently Persuasive Advertising.” Harvard Business School Working Paper Series, No. 02–099.
Beatty, S.E. and S.M. Smith. (1987). “External Search Effort: An Investigation across Several Product Categories.” Journal of Consumer Research 14, 83–95.
Bridges, E., C.K. Yim, and R.A. Briesch. (1995). “A High-Tech Product Market Share Model with Customer Expectations.” Marketing Science 14, 61–81.
Bridges, E., A.T. Coughlan, and S. Kalish. (1991). “New Technology Adoption in an Innovative Marketplace: Micro- and Macro-Level Decision Making Models.” International Journal of Forecasting 7, 257–270.
Brucks, M. (1985). “The Effects of Product Class Knowledge on Information Search Behavior.” Journal of Consumer Research 12, 1–16.
Ching, A. (2002). “Consumer Learning and Heterogeneity: Dynamics of Demand for Prescription Drugs After Patent Expiration.” Working Paper, Ohio State University.
Claxton, J.D., J.N. Fry, and B. Portis. (1974). “A Taxonomy of Prepurchase Information Gathering Patterns.” Journal of Consumer Research 1, 35–43.
Crawford, G.S. and S. Matthew. (2003). “Uncertainty and Learning in Pharmaceutical Demand: Anti-Ulcer Drugs.” Working Paper, University of Arizona.
Delevande, A. (2003). “Pill, Patch or Shot? Subjective Expectations and Birth Control Choice.” Working Paper, Northwestern University.
Eckstein, Z., D. Horsky, and Y. Raban. (1988). “An Empirical Dynamic Model of Brand Choice.” Working Paper No. 88, University of Rochester.
El-Gamal, M.A. and D.M. Grether. (1995). “Are People Bayesian? Uncovering Behavioral Strategies.” Journal of the American Statistical Association 90, 1137–1145.
Erdem, T. and M.P. Keane. (1996). “Decision-Making Under Uncertainty: Capturing Dynamic Brand Choice Processes in Turbulent Consumer Goods Markets.” Marketing Science 15, 1–20.
Erdem, T., S. Imai, and M.P. Keane. (2003). “Brand and Quantity Choice Dynamics under Price Uncertainty.” Quantitative Marketing and Economics 1, 5–64.
Furse, D.H., G.N. Punj, and D.E. Stewart. (1984). “A Typology of Individual Search Strategies Among Purchases of New Automobiles,” Journal of Consumer Research 10, 417–431.
Glazer, R. (1991). “Marketing in an Information-Intensive Environment: Strategic Implications of Knowledge as an Asset,” Journal of Marketing 55, 1–19.
Glazer, R. and A.M. Weiss. (1991). “Marketing in Turbulent Environments: Decision Processes and the Time-Value of Information,” Working Paper No. 1145, Graduate School of Business, Stanford University.
Gönül, F. and K. Srinivasan. (1996). “Estimating the Impact of Consumer Expectations of Coupons on Purchase Behavior: A Dynamic Structural Model.” Marketing Science 15, 262–279.
Harris, K. and M.P. Keane. (1999). “A Model of Health Plan Choice: Inferring Preferences and Perceptions from a Combination of Revealed Preference and Attitudinal Data.” Journal of Econometrics 89, 131–157.
Hauser, J.R., G.L. Urban, and B.D. Weinberg. (1993). “How Consumers Allocate Their Time when Searching for Information.” Journal of Marketing Research 30, 452–467.
Hendel, I. and A. Nevo. (2002). “Measuring the Implications of Sales and Consumer Stockpiling Behavior.” Working Paper, UC Berkeley.
Holak, S.L., D.R. Lehmann, and F. Sultan. (1987). “The Role of Expectations in the Adoption of Innovative Consumer Durables: Some Preliminary Evidence.” Journal of Retailing 63, 243–259.
Keane, M.P. (1993). “Simulation Estimation for Panel Data Models with Limited Dependent Variables.” In G.S. Maddala, C.R. Rao, and H.D. Vinod (eds.), Handbook of Statistics, Elsevier Science Publishers.
Keane, M.P. and K. Wolpin. (1994). “Solution and Estimation of Dynamic Programming Models by Simulation.” Review of Economics and Statistics 76, 648–672.
Kiel, G.C. and R.A. Layton. (1981). “Dimensions of Consumer Information Seeking.” Journal of Consumer Research 8, 233–239.
Krishna, A. (1992). “The Normative Impact of Consumer Price Expectations.” Marketing Science 11, 359–371.
Lerman, S. and C. Manski. (1981). “On the Use of Simulated Frequencies to Approximate Choice Probabilities.” In C. Manski and D. McFadden (eds.), Structural Analysis of Discrete Data with Econometric Applications, Cambridge: MIT Press.
Lochner, L. (2003). “Individual Perceptions of the Criminal Justice System.” Working Paper, University of Western Ontario.
Manski, C.F. (2003). “Inference on Expectations and Decisions.” Econometrica forthcoming.
McFadden, D. (1974). “Conditional Logit Analysis of Qualitative Choice Behavior.” In P. Zarembka (ed.), Frontiers of Econometrics, New York: Academic Press, pp. 105–42.
McFadden, D. (1989a). “The Choice Theory Approach to Market Research.” Marketing Science 5, 275–297.
McFadden, D. (1989b). “A Method of Simulated Moments for Estimation of Discrete Response Models without Numerical Integration.” Econometrica 57, 995–1026.
Melnikov, O. (2000). “Demand for Differentiated Durable Products: The Case of the US Computer Printer market.” Working Paper, Yale University.
Meyer, R. and J. Assuncao. (1990). “The Optimality of Consumer Stockpiling Strategies.” Marketing Science 9, 18–41.
Moorthy, S., B.T. Ratchford, and D. Talukdar. (1997). “Consumer Information Search Revisited: Theory and Empirical Analysis,” Journal of Consumer Research 23, 263–277.
Moscarini, G. and L. Smith. (2001). “The Optimal Level of Experimentation.” Econometrica 69, 1629–1644.
Newman, J. and R.E. Staelin. (1973). “Information Sources of Durable Goods.” Journal of Advertising Research 13, 19–29.
Pakes, A. (1987). “Patents at Options: Some Estimates of Value of Holding European Patent Stocks.” Econometrica 57, 1027–1058.
Roberts, J.H. and G.L. Urban. (1988). “Modeling Multiattribute Utility, Risk, and Belief Dynamics for New Consumer Durable Brand Choice.” Management Science 34, 167–185.
Song, I. and P. Chintagunta. (2003). “A Micromodel of New Product Adoption with Heterogeneous and Forward-Looking Consumers: Application to the Digital Camera Category.” forthcoming in Quantitative Marketing and Economics.
Srinivasan, N. and B.T. Ratchford. (1991). “An Empirical Test of a Model of External Search for Automobiles.” Journal of Consumer Research 18, 233–242.
Weiss, A.M. and J.B. Heide. (1993). “The Nature of Organizational Search in High Technology Markets.” Journal of Marketing Research 30, 220–33.
Westbrook, R.A. and C. Fornell. (1979). “Patterns of Information Source Usage Among Durable Goods Buyers.” Journal of Marketing Research 16, 303–312.
Urbany, J.E., P.R. Dickson, and W.L. Wilkie. (1989). “Buyers’ Uncertainty and Information Search.” Journal of Consumer Research 16, 208–215.
Van der Klaauw, W. and K.I. Wolpin. (2003). “Social Security, Pensions and the Savings Behavior of Households.” Working Paper, University of North Carolina.
Author information
Authors and Affiliations
Corresponding author
Additional information
JEL Classification: C15, C33, C35, C42, C51, C52, D83, D84
Rights and permissions
About this article
Cite this article
Erdem, T., Keane, M.P., Öncü, T.S. et al. Learning About Computers: An Analysis of Information Search and Technology Choice. Quant Market Econ 3, 207–247 (2005). https://doi.org/10.1007/s11129-005-0269-7
Issue Date:
DOI: https://doi.org/10.1007/s11129-005-0269-7