1942 Cowles Foundation for Research in Economics

Despite evidence that consumers search across both stores (spatial) and time (temporal), the search literature models search in only one dimension. We develop a model of spatiotemporal search that nests a finite horizon model of spatial search within an infinite horizon model of intertemporal search. The model is estimated using an iterative procedure that formulates it as a mathematical program with equilibrium constraints (MPEC) embedded within an E-M algorithm to allow for latent class heterogeneity. The empirical analysis is based on data on household store visits and purchases in the milk category. In contrast to extant research, we find that omitting the temporal dimension underestimates price elasticity. We attribute this difference to the importance of stockouts relative to stockpiling in the milk category. Further, contrary to the conventional wisdom that promotions reduce loyalty, we find that in the presence of search frictions, price promotions can be a store loyalty-enhancing tool.