Inattention to Search Costs in the Gasoline Retail Market: Evidence from a Choice Experiment on Consumer Willingness to Search

Abstract

We use a choice experiment on gasoline consumers to investigate whether respondents exhibit limited attention to the way different costs enter their search decision. The search cost is a function of the amount of gasoline consumed while driving and the time spent searching for the lowest price. The gasoline used to drive is a disbursement the consumer has made in the past, whereas the time spent searching is a cost that is incurred at the time of search. We randomize the amount of information we provide respondents about search costs in one of 3 ways: (1) time, (2) gasoline spent driving or (3) both. The results indicate that consumers exhibit inattention, leading them to overestimate the cost of the gasoline used while driving, which in turn results in consumers not searching when the expected gains from search exceed the costs, forgoing consumer surplus. The differences in the magnitude of the effect of inattention to time costs, however, can be attributed to cognitive costs of computing the value of the amount of time it takes to drive one mile; it is stronger among consumers that were not reminded of either search cost.