Consumer Choice and Use of Multiple Information Sources for Automobile Purchases

Abstract

People consult various sources, including the Internet, to search for information before purchasing an automobile. We develop an econometric model for a consumer's time allocation over multiple information sources. The process of searching is viewed as a formal choice problem in which the consumer attempts to choose the amount of search from multiple sources to maximize the benefit of purchase net of search cost. Observed data on time allocation over representative sources are postulated to arise from this optimizing behavior, and the proposed econometric model is calibrated to four waves of survey data from buyers of new automobiles, covering purchases made in 1999, 2001, 2003, and 2005. Consistent with the requirement that buyers must complete the transaction and obtain delivery at dealerships, we find that, on average, the baseline preference for sources is the highest for dealer-related activities. However, we also find that the share of time devoted to the Internet increases considerably with overall search time. In particular, we find that more educated buyers under age 40 who search extensively are likely to rely heavily on the Internet in their search. This indicates that the Internet has become the key medium for manufacturers and dealers who are targeting younger, more educated buyers.

Keywords:

• Automobile market
• business-to-consumer e-commerce
• consumer information search
• discrete-continuous choice model
• economics of information
• limited dependent variable