CONSBEHAVIOR

Consumer Behavior and Market Equilibrium in Industrial Organization: Identification of Structural Parameters and Implications to Public Policy

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 Obiettivo del progetto (Objective)

'The first scientific objective of the project consists on recovering the distribution of search costs and of the parameters describing market equilibrium when search for the best product is costly and products are differentiated both horizontally (attributes of the product are valued differently by each consumer) and vertically (consumers agree on the ranking of the attributes). The second objective is to estimate long run cross price elasticities when consumers stockpile differentiated products. Both search and stockpiling behavior importantly affect the welfare consequences of competition regulation, especially entry and mergers. The project is an extension of my current work and is thus consistent with my research skills and agenda. On the other hand, it also demands a diversification of competencies since it focuses on firm behavior and market equilibrium, whereas before I have concentrated on consumer responses. It is to be hosted by the Department of Economics and Business at the University Pompeu Fabra in Barcelona, Spain. The Department is an ideal host for the project given its top quality multidisciplinary research environment and its many international connections, which allows for rich debate and work collaborations. The scientist in charge is Juan José Ganuza, an experienced researcher with an outstanding research record, especially in what concerns publications in top peer reviewed journals.'

Introduzione (Teaser)

Consumer reactions to product characteristics impact the behaviour of firms and, by extension, the competition environment. A European research initiative endeavoured to better understand consumer behaviour in these terms and subsequent implications for public policy.

Descrizione progetto (Article)

Supported by EU funding, the CONSBEHAVIOR project focused on consumer behaviour and market equilibrium in industrial organisation.

To achieve its goals, research covered price dispersion and search costs, and dynamic demand with inventories.

Work was also carried out on product safety and consumer reactions to product safety threats, as well as gender bias in household expenditure patterns.Findings on the relevance of search costs and its effect on the purchase behaviour of consumers were addressed in the paper 'Price Dispersion and Search Costs: The Roles of Imperfect Information and Product Differentiation'.

This paper is the first to identify search costs in a context of horizontally differentiated products (where product attributes are valued differently by each consumer).

Research and findings on dynamic demand have been outlined in the paper 'Inventories, Unobservable Heterogeneity and Long Run Price Elasticities'.

The paper develops a dynamic model of demand with inventories, and offers a simplified estimation method for structural long-run price elasticities that are consumer specific.With respect to product safety, the main objective was to investigate how consumers react to a major product safety threat such as the mad cow disease crisis.

A relevant paper, 'Consumers.

Response to Product Safety Threats: Evidence from the Mad Cow Disease', is being prepared.

Among other contributions, this line of investigation advances a framework for assessing the effects of price controls and other regulatory measures on consumer choice and expenditure. Gender differences in household expenditure patterns are examined in the paper 'Gender Bias in Intrahousehold Allocation: Evidence from an Unintentional Experiment'.

Results from this study were published in the Review of Economics and Statistics.The study was successful in highlighting issues relevant to public policy, particularly with regard to competition.

CONSBEHAVIOR outcomes thus contribute to the literature on parameters related to market functioning and therefore policy implications.