Academic journal article Economic Inquiry

An Objective Measure of Search versus Experience Goods

Academic journal article Economic Inquiry

An Objective Measure of Search versus Experience Goods

Article excerpt

I. INTRODUCTION

"Search" goods and "experience" goods have been part of the lexicon of economics for twenty years now. During this time a substantial body of research has been influenced by Nelson's 1970 and 1974 papers, which enlarged upon Stigler's [1961] seminal paper. Despite the appeal of the search versus experience dichotomy to members of the economics profession, empirical development and application of the concepts involved has not been impressive. (1)

Stigler [1961] argued that consumers' efforts to acquire information about the quality or performance of products and vendors are a function of expected benefits and costs. Nelson's [1970; 1974] work attempted to measure the expected benefits and, to a lesser extent, expected costs to consumers of acquiring product and vendor information. Unfortunately, although this search versus experience dichotomy now is part of economists' conventional wisdom, it has led to little empirical analysis beyond Nelson's investigations. The root problem seems to be a lack of agreement over the definition of a search good versus an experience good. To Nelson [1970], the latter is one whose qualitative characteristics are not ascertainable by buyer inspection prior to purchase. Thus, information about the product's quality or performance can be obtained only through buying and using the item. We can, however, ascertain performance information about search goods prior to purchase.

Porter's [1976] analysis of the acquisition of product information by consumers classified items as convenience and non-convenience goods. The former are characterized by low unit price and high frequency of purchase; the opposite holds for non-convenience goods. The low unit price of convenience goods implies that relevant performance information will be acquired via sampling (experience), even though one might be able to acquire the information from other sources, but at higher cost. An experience good is not such by design, rather by virtue of consumer choice in the face of varying informational costs. Thus, Porter's measure of the incentive to acquire product/vendor information is product price, as opposed to Nelson's ad hoc search/experience dichotomy. Using Porter's classification, Meisel [1979] argues that the degree to which consumers' efforts to acquire information take the form of search rather than sampling/experience depends on the expected costs and benefits for any given product. Similarly, Laband [1986] argues that consumer demand for product and vendor information in advance of purchase is affected by both price and frequency of purchase.

Nelson's classification scheme is at odds with his definitions. For example, he regards food as an experience item, although much relevant information about it is available prior to purchase. (2) Product classification is admittedly ambiguous (e.g., jewelry and silverware). In fact, the search vs. experience classification more logically represents the two extremes of product classification, with most items falling somewhere in-between. By subdividing experience goods into durable and nondurable categories, Nelson [1974] validates this assertion.

Given this ambiguity, it is understandable that empirical research in this nexus of producer/consumer interaction has been limited. To use the search-experience classification for empirical analysis, one must either borrow Nelson's existing scheme, which is limited in product coverage, or create new product classifications which are of dubious merit. On the other hand, the Porter/Meisel analyses, which do provide the micro-foundations of consumer behavior in the face of uncertain product/vendor quality, have never supplanted or integrated Nelson's work into their broader framework.

The purpose of this paper is to bridge these two strands of the advertising as information literature. I argue that the discussion of search versus experience goods and, more importantly, the behavior of buyers and sellers, is driven by the cost to the buyer of a disappointing purchase. …

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