Re,~onal Science. and Urban Economies !7 (lg:8~ 109-121.

North-Holland

THE DEMAND FOR TELESHOPPING

An Application of Discrete Choice Models

Charles F. MANSKI
Universit : of Wisconsin-Madison, Madison, Wf 537~6~USA

I!ar~ SALOMON
Hebrew Universdtyof 3erusalerrg Jerusalem, Israel

Received April 1986, final version received August 1986

New telecommunications technologies have often been suggested to act as subsfi~ute~ for !ravel.
Teleshopping may be a substitute for traditional store shopping. ,'i'his paper stu~es the
determination of the demand for teleshopping. In general, the demand for telecommunications iz
derived from the demand for information. So we look at teleshopping as a form of ~ . ' m a t i o n
gathering. Agents can engage in various shopping activities, including teleshopping, which entail
different time and monetary costs. Through a discrete choice model, we analyze ~:~ ¢~ect of
costs on the choice of shopping activities. The model is esfiraated based on a pilog e~gerimen~ ~n
which individuals had to choose among inforraafiur~ bundles when shopping b~ 61ff~eni~ated
products. Irhptidt in the choice set were information items which c~*: only b~ ~:~m_it~ed by
specific media. Limitations of this preliminary work and suggestions for fu~re r ~ r c h are
discussed-

1. Introdectlon
Teleshopping, an application of 'new ire'urination technologies' (NIT), has
the potential of altering travel patterns as shopping trips are substituted by
electronic traffic. It may be cited as an exampk~ of ~he broader claim that
NIT can substitute for travel tHarkness (1973), Ketlerman (1985), Kraemer
(1982)]. On the other hand, some research suggests that the increased
availability of sophisticated telecommunications (telecoms) technoio~es wilt
enhance interactions among people, resulting in an increase in travel [Clark
and Unwin (1981), Salomon (1985, 1986)]. Very noticeable in this body oi"
literature is the absence of a sound analyti~1 framework to investigate the
demand for telc¢oms relative to the demand ~%r travel. This paper presents a
preliminary step in this direction.
Our work emphasizes that telecoms serviezs are not end products but
means for obgaining i~ormat.;on tba*. is located elsewhere. We envision
choice situations where individuals must choose some combination of travel

0166-0462/87/$3.50 @, 1987, Elsevier Science Publishers B.V. {North-Holland)

110 C.F. Mar,ski and 1. Salomog The demand for tele~~opping

to the source (destination) of the information and use of telecoms. The

demand tbr telecoms depends on the desire to obta/n information and tb.~
costs associated with the transfer of information by alternative means. Thus,
telecoms demand is derived from the demand for infurmation. Most studies
of the demand for telecoms have ignored this central point. The few studies
which do recognize k make no attempt at analysis [Bennison (1985), Ettema
(1985)].
Information is acquired by agents (individuals or t'Lrms) who are willing to
pay its cost for the benefit of reducing ~-ncertainty. When facing a decision
under u~.~rtainty, agents consider the acquisition of information and choose
among alternative information gathering activities. If the uncertainty is small
and/or the costs of information gathering are high, one may decide not to
invest in much information acquisition. Contrariwise, the greater the un-
certainty and lower the costs of information gathe~ng, the more effort one
may devote to information acquisition.
Shopping, as opposed to purchasing, is an information gathering activity.
As such, it can serve as a useful case for analyzing the impact of NIT on
spatial behavior. If the approach presented here proves fruitful, it may
further our understanding of the spatial effects of telecommunications.
Telesbopping, the activity of obtaining information on products througu
electronic meatus, usually provides the shopper with attribute information on
a defined set of products. Most of the information is in written, verbal and
numeric form. At best, the customer can see a photograph or a computer
image of the product. Store shopping, on the other hand, facilitates a three
dimensional view of the product as well z~ the use of other thz_a audio and
visual senses. Store shopping also facilitates the acquisition of 'informal' infor-
mation such as the reactions, including ne:a.-verbal messages, of salespersons.
The uncertainty reducing banctions of the in/orma~on obtained through store
shopping vs. teieshopping is one determinant of the choice !~tween the two
modes. Other functions of shopping, such :~ recreation, may also exist.
The present paper takes a very small s*ep in the direction of understanding
and forecasting the use of telecommTmications, as derive:l from the demand
for information in a relatively well-defined class of decis:~on probleins. These
are the cnnsumer purchase problems°
In what follows, section 2 develops a simple expected :~tility model
explaining consumer information acqui~t~on as a prelude to purchase
decisions. This model assumes that the s~t of available information gathering
activities is exogenously given. In particular, our analysis takes the
consumer's telecoms service as give~. We do not attempt to explain how the
consumer selects his te|ecoms service configur.qtion.
Section 3 presents preliminary empirical estl ~ates of a simple, version of the
model. These estimates are based on data I~om a small set of hypothetical
choice experiments conducted by the authors. The results are at least illusb
 C.F. Manski and L Salo~,.gn, The demccrdfor teleshopping 111

rative and possibly of some interest per so. The work presented in this paper
is only the first step in what we hope will be an extended research program.
Section 4 discusses some directions for future research.

2. A model of shopping
We consider the following idealized setting. A consumer must selec~ one
among a set of differentiated products. A possible choice is the 'null option'
in which the consumer makes no purchase. Other possible choices are
products of which the consumer is aware. The consumer does not necessarily
know of all the products that are actually available. Moreover, he may lack
complete information about ff,e attributes of those products he does
reco~.
Before making a purchase decision, the consumer can attempt to ~,dd to
his knowledge, As a shorthand, we refer to his information gathering
activities as 'shopping'. Shopping informs the consumer of the existence of
products not previously k~lown and provides infon~iation on the attributes of
known products.
For simplicity, we assume that the consumer selects a bundle of sh~pp~ng
activities, processes the resulting infonna¢iop, and then makes his purchase
decisiorL One possible shopping choice is the "nuU activity' of not d~L~g any
shopping. Other shopping bundles are composed of specified combir~a~i~ns of
teleshopping and store shopping ~.,ctivities. It would be more realistic to
allow the "consumer to shop sequentially. In sequential shopping~ the con-
sumer sel~ts an ~nformation gathering activity, observes its outcome, and then
decides whether to seek further information. Clearly, sequen~;al shopping
is much more complex to analyze than the single round assumed here.
We model the consumer's choice among bundles of shoppi, g activities az
the outcome of expected utility maximization. To describe the decision
process, let C be the set of available products. Let each product i ~ C be fully
characterized by an attribute vector, l.~t u(x) be the utility of a product with
att~-ibute vector x. Assume that the consumer's uncertainty about tt~e
attributes of product i can be expressed through a prior subjective proba-
bility distribution F~. Then the ex_oected utility associa~_ed with product i is

e[u(x)!O = ~ u(x) dF~. {t)

Among the etcments of C are those produc~ the consumer recognizes, the
null option of no purchase, and those produc~s the consumer is unaware of.
Without loss of generality, we assign the null option er,pected utility zero and
assign the products unknown to the consumer negative utilities. That is, we
reinterpret the consumer's lack of knowledge of a product as his giving that
product a subjective attribute distribution which yields ~.egative expect~
112 C.F. Mm~skiand L Salomor. TF~ demandfor tetrahopping

utility. This convention is ana!ytically advantageous. It allows us to treat C

as the consumer's product choice set arid to interpret all of the consumer's
uncertainty as uncertainty about the attributes of known products.
In the absence of shopping, the consumer simply selects a product in C
that maximizes expected utility (I). Now allow for the possibility of
shopping. Let S denote the set of bundles of shopping activities among which
the consumer can choose. Each s~_S is characterized by the information it
yields and by its cost. Note that S includes tk~ null activity of doing no
shopping. This alternative, designated n, yields no ipforraation and has no
cost.
For each s~S, we denote the cost in utility units by cs. For present
purposes, we need not describe in detail the determinants of the uti'Ry cost
of shopping. It is, however, important to recognize that the cost of shopping
is suffje~dve. Presumably, the utility cost of shopping rises with the monetary
expense of shopping. But the cost of a shopping activity may or may not be
monotonic in the iLne required to perform the activity. In particular,
shopping may be pleasurable lo the consumer, as it fulfills e t h e r ' t h a n
information gathe~ng functions [Tauber (t972), Bellenger and Korgaonkar
(t980)]. If so, then the utility cost of shopping might be a decreasing function
of time, at least in some range. We characterize the inferm-~tion pyovided by
shopping bundle s as the realizatio~ of a random variable z~ whose prior
subjective distribution is denoted G~. Assume for the moment that s has been
chosen as the shopping bundle and that z~ has been observed. Then it is
optimal for the consumer to sei~t a product in C that ma~imizes the
posterior expected utility function

EEu(x)]i, z~] = ~ u(x) dF~t~,. (2)

Hence, the ex-ante expe~ed utility of shopping bundle s is

(3)
" L i~C J ~ ieC ~s

We assume that the consumer selects a shopping bundle ;n S that maximizes

the ex-ante expected utility (3).
The expected util/ty model provides a simple yet quite general represen-
tation of shopping behavior. It iv enlightening to compare the ex-ante
expected utility of a shopping bundle s with that of the null activity. This is
 C.F. Manski and L Salomon, The demandfor teleshopping 113

The expression

b,,=-E[ mffc~,EEu(x)li,z,]]-~ax EEu(x)]O (5)

is the ex-ante informational benefit associated with shopping bundle s.

The ex-ante informational benefit of shopping is always non-negative. This
follows from the fact that the 'max' function is convex. Jonson's inequality for
convex functions implies that

(6)

Hence, b, > 0.
Jensen's inequality also implies that the magnitude of the informational
benefit increases with the extent of the infurmatic,a obtained. Consider two
shopping bundles r and s such that s reveals the value of z while r reveMs
the value of (z,y), where y is another relevant variable. Then

Implicit in the consumer's expected utility maximizing choice of a shopping

bundle is a defraud for telecoms. Assume that there exist K forms of
telecommunication (e.g., local telephone conversation, long d~stance tele-
phone conver~tion, data transmission, etc.). For each shopping bundle seS,
let Q~eR x denote the vector of teleeoms services required to perform the
bundle of shopping activities. Assuming that the expected utility maximizing
shopping bundle is unique, the consumer's demand for teteeoms arising out
of shopping is

o = ~ Q~,I[K_>_4, aU r~S], (8)

s~S

where 1[ ] is the indicator function taking the value one ff the logical
condition in the brackets is true and zero othe~isc. Eq. (8) makes very
explicit our central theme, namely that the cons~aer's telec~ms consumption
is derived from his iuformation gathering decision.
To conclude this discussion, we call attention to the fact that the
economics, psychology, and marketing literatures offer varying perspectives
on the process by which consumers acquire information and make purchase
decisions. In many respects, these persFectives overlap, although differences
114 C.F. Manski and I. S~gmon, The demand for teleshopping

in jargon and emphasis may obscure this. In other respects, t h e different

literatures truly are at odds in their assumptions about behavior.
One important example of a difference in behavioral assumptions regards
the treatment of information processing. The expected utility model, almost
universally applied in economic ~ r e h , e~.w.~umesthat information processing
is effort.~ess. Hence, as we pointed out in eqs. (6) and (7), the more information
the consumer has, the better his decisions.
Many psychological models, on the other hand, hypothesize that the
consmner has limited information processing ability [for example, Brucks
(1985)]. These models assert that if the consumer is given too much
information, he losses his ability to discriminate between important and
trivial facts. This thee leads to .a deterioration in the quality of decisions.
Simfl~ly, the marketing literature suggests that an information overload may
be dysfunctional rMalhorta (1984), Jacoby (1984)].
It seems to us that the psychological concern with the effects of limited
information processing ability is well-placed. For example, inform.ation
overload may explain the small market pe:~etratio~ of home information
services [Elton and Carey (1983), Beunison (1985), Howard (1985)].
Nevertheless, the present work uses the behavioral assumptions of economic
modelling. The reason is that the economic model offers a fully developed
framework for analysis while the psychological one remains only vaguely
stated. A primary objective of our ongoing work is to try to integrate the
two in a sensible, productive way.

3. A limited empirical aBaly~is

One would like to be able to forecast quantitatively how the demand for
teleshopping varies with such factors as

(a) the product whose purchase is contemplated,

(b) the product information provided by the available teleshoppi,,~g and
store shopping activities,
(e) the money and time costs of the varions forms of shopping,
(d) consumer characteristics.

Assume that the exI~ected utility model of section 2 describes actual

behavior. Then m develop a cotaprehensive forecasting capability, one
should estimate consumer's utility functions u(*), product choice sets C,
subjective probability distributions F and G, and subjective shopping costs c.
In principle, empirical investigation of ali the determinants of expected
utilities may be possible. But it clearly is a very large task. Fortunately,
forecasting is not an all-or-nothing proposition. Limited empirical analyses
can provide estimates of relevant aspects of consumer decision processes. In
 C.F. Manski and 1. Saiomon, Tk.e demand for teleshopping 1t5

particular, partial ~s~hLates can suffice to forecast the effect on shopping

behavior of some factors of interest, holding others fixed.
We shall show that given a relatively mcdcst empirical effort, one can
forecast how changes in the subjective costs of alternative shopping activites
affect shopping behavior, ceteris paribus. Section 3.1 develops this approacE
Sectic~a~ .;.2 a ad 3.?. demonstrate its fe&sibility through a small pilot study.

3.1. Approach
The idea is as follows. MarArnization of expected utiilty V~ over s ~ S is
equivalent to solution of the problem

max b~- c~, (9)

s~S

where the informational benefit b~ was defint5 in (5). Implicitly, b~ is

determined by u(*), F, G, and C. Let us, however, agree to restrict attention
to situations in which these factors remain fixed. Then we can treat the
values b~, sES as consumer-specific constants while we i~vestigate the effect
on behavior of varying shopping costs.
To develop an estimable mod.el, let us now consider a popula~fc~l 3 of
consumers. For each j ~ J and s~S, let bj~ and css denote the benefit and cost
to consumer j of shopping bundle s. Let us write

bi~=f(wp&) + t5i,, (10)

where wj is a vector of observable characteristics of consumer j, where ~ is a

parameter vector that is specific to s, where f(*,*) is a specified function, and
where 5i~ is simply the deviation between bi~ and f(w~, fi~). Furthermore, let
us write

cj~=g(ms,,~,%,o/)+~w 01)

Here, mi~ and ti~ are respectively the money and time consumer ] must
expend to perform the bundle s of shopping activities. Also, ], is a parameter
vector, g(*,*, *, *) is a specified function and ~ is the deviation between cs~
and g(mj~,tj~,ws, v).
Inserting (10) and (11) into (9), the consuw~efs decision criterion becomes

maxf(wj, fl~)-~mj~,tis, ws,l,)+~s~-~. (12)

s~S

Let us now treat (fij~,~j~,seS) as ~he realization of a random variable

distributed over the population J. The~-~(12) is a conventional random utility
116 C,F. Manski and I. Solomon, The deraandfor teleshopping

model yielding choice probabilities

Psi= Prob[f (ws, 11,)-g(rni,, tj,, ws, ~) + 6j,-ej~

>f(wi, fl,)-g(m~.,ts,,wj,7)+gi,-zj, all r~S-J. (13)

It follows from (8) that the expected demand for teleshopping of consumer j
is

E(Dj)=_ ~sQ~,Pj,. (14)

Given distributional assumptions on (~Si~,ei~,s~S), the choice probabilities

may be estimated from observations of actual or hypothetical shopping
decisions made by a sample of consumers. The estimated choice probabilities
may the~ be applied to forecast how shopping behavior varies with changes
in the money or time expenses of shopping or with changes m observable
consumer characteristics. Let Pj~ be an estima~ of Pj~. Then

seS

is a natural estimate for E(Dj).

3.2. Design of a pilot study

We have conducted a small set of hypothetical choice experiments and
used these data to estimate a form of the random utility model (t3). In each
experim_cn~, the subject was asked to imagine himseff considering the
purchase of one among a set of differentiated products. Hew-as told that
prior to selection of a product, he must choose among a specified set of eight
alternative bundles of information on product attributes. A monetary and
time expense was associated with each bundle.
In one series of experiments, the dLfferentiated product under consideration
was a refrigerator. Fourteen experiments were performed. The bundles of
information remained the same across the experiments but the monetary an~
time expenses of these bundles were varied. In a second series of experiments,
the product under consideration was an electric mixer. Again, fourteen
experiments were performed. Table 1 summarizes the experimental design.
The information bundles decriptions provided to subjects did not specify
the medium by which the information is to be transmitted. Thus, these
experimenis do not expli~tly ask subjects to select between teleshopping and
store shopping activities. If subjects value equally time spent in teleshopping
and store shop~ng, then analysis of shopping behavior does not require that
 •Table I
Design of the experiments.

Monetary and tilue expenses experiment

Product information bmldles I 2 3 4 5 6 7 8 9 10 11 12 13 '.4

A. Size, price, brand $ 0,33 033 0.33 1.33 1.33 1.33 1,33 133 1.33 133 133 1.33 1.33 2.00
hours 1/6 1/12 2./3 2/3 1 1 I/6 3/4 12/3 I/6 1/6 I/6 2/3 1/3
B. Bundle A + 0,3"~ 0,67 O,67 1.67 2.00 2,67 1,67 1,67 1.67 1.67 1,67 2,67 ZOO ',67
delivery date I/4 1/6 I I 7/6 3/2 1/4 5/6 13/12 1/3 I/2 1/2 1/2 2/3
C. Bundle B+ 0.33 1.00 0.67 2.00 3,33 5.33 2.67 2.00 2.00 2.00 2.00 6.00 2.67 :3.33
warranty details I/3 1/4 4/3 3/2 3/2 2 I/3 ! 4/3 1/2 5/6 5/6 2/3 1
D. ~JuMle C + 0,33 1.67 0.67 2.67 4.67 4.00 3.33 2.33 3.33 3.33 4.67 6.67 533 6.00
¢~crgy ,~nsumption 5/12 I/3 3/2 5/3 5/3 13/6 5/12 7/6 3/2 2/3 3/2 7/6 3/4 3/2
E. Bundle D + 1.33 2.67 1.33 4.00 6.00 8.00 3.67 2.67 3,67 3.67 6.00 8,00 4.00 8.00 ~"
color pictur~:~ 112 112 5/3 11/6 13/6 8t3 1/2 3/2 2 5/6 5/3 4/3 1 2 t
of products 1.
F. Bundle E + 1.33 4.67 ZOO 4.67 8,67 IO.O0 4.67 3.(',-: 4.00 5.33 7.33 10.00 8.67 1 LO0
viewing of products 7/12 3/4 11/6 13/6 7/3 111/3 7/12 13/6 7/3 3/2 11/6 2 2 3 ~.
in store window
G, Bundle F + 1.33 6.00 2.33 5.00 1t.33 13.33 5.00 3.33 4.33 6.00 8.00 12.00 10.67 13.33
demonstration of 2/3 5]6 5/2 7/3 5/2 4 2/3 3 8/3 2 13/6 5/2 3 4 ~"
products by salesperson
H. Bundle G + 1.33 8.00 2.67 5,33 [3.33 14.67 5.67 3.67 4.67 6.67 933 14,00 13.33 20.00
opportunity to examine 3/4 I 1"'/6 3/4 3 14/3 3/4 4 10/3 5/2 5/2 3 10/3 5
products physically
118 ~'~. Man~ki t~,.d L Salomon, The demandfor teleshopping

the medium of Jhf~rmati~ ~ansmission bc sr~cified. Although the pilot

study made thi~ ~ssumption for the sake of simplicity, we do not feel
confident of it. I~ ft~turc work, we would specify the medium of information
transmission for ~ c h shoplaing bundle.
When the infoftY~tion n~cdium is not specified, the subject may neverthe-
less associate cettai~ bundles with particular media. All of the information
provided in bun~iIa~ A tl~rough D can be transmitted by verbal telephone
conversation, by l~fint media, or by store shopping. The additional informa-
tion provided by b~tndles E, F, and (3 cannot be obtained by telephone but
can be transmittal by tdecoms modes that are now becoraing available.
Bundle H provid~ infor/~ation intrinsically beyond the capability of tele-
corns. To examid~ the actual product, physical movement (of the consumer
to a store or of tP~ product to'the consumer) is necessary.
The full set of' ~Xperiments were administered to each of cwenty subjects
living in the J~,~alem area. We aiso a:,certained various ~,ackground
characteristics of [tie subjects. The subjects were not selected by any formal
sampling proee,~, They Weee rather simply people who were available and
willing to particit~te in the experiments.
We have used d~ta fror~ these experiments to estimate ~ ,set of random
utility models a f the choice among "nformation bundles. The estimated
models explain ~p~ately the behavior of males and females shopping for
refrigerators m~d a~ixers, ha each of the four cases, the assumed decigion
criterion is the fol~owing simple special case of (12):

max/L+Y~r%+'/2t~ 4-rh, (16)

s~S

where $=(A,B,~I3,E,F~O,H) is the set of informatiou bundles of table 1

and where ~ h ~ , . Tt~e distrubances ~ s---1..... S are assumed drawn
independently f f ~ the extreme v21u~ distribution so*that the choice
probabilities (13~ ~ave tl~e rauitinomial legit form. In models OiL (iii), and
(iv), the origin of the utilit3, scale is fixed by setting flA=0. In model 6), none
of the subjects e¢(¢ selected alternatives, A, B, or C so the ori~i~ is fixed by
setting .Sa=0.

3.3. Findings
Table 2 prc#~ts pseudo-maximum likelihood estimates for the four
models. We say ~f~udo' ~aaximum likelihood because the estimator treats
the experiments Conducted with a given subject as independent observations.
It would be m6fe realistic, but much more complex, to allow for the
possibility that tl~a responses of a given subject may be mutually dependent.
To the extent tl~t rcspooscs are dependent, the asymptotic t values reported
in table 1 are s#l~ct. On the other hand, failure to account for dependence
 C.F. Mar,ski and L Salomon, The dema~ ~ r teleshopI)ing 119

Table 2
Maltinomial Iogit estim~t~
Refrigerators _ _ _ r~#~¢~

Males Females ~ ~ e ~ a M e s
(i) (ii) I~,~}, _ (b)
Variable Est~ate t Estimate t ~l~stimate
BundleA -- m -- 0 -- --/ 0
Bundle B -m -- 0.11 (0.22) --,
BundleC - ov -- 1.91 (4.~)
Bundle D 0 -- 2.82 (5.37) 5¢, {0,~,#) - 1.1~ ( 2.7a3
-

Bundle E 1.21 (3.27) 4.14 (6.92)

Bundle F t.81 (4.51) 0.80 (0.66)
Bundle G 1.67 (3.48) 2.58 (2.84)
Bundle H 2,74 (5.34} 4.56 {5_37) ,,~ (~) o.~ (o.91)
C~t ($) -0.12 (--1.92) --0.52 (--5.3I)
Time (hrs) 0.096 (0.37) -0.198 (-0.67)

does not affect the interpretation of the p a r a ~ r estiW~ttes themselves, irt

particular, the estimates remain consistent even :~.}f~por~s~ are d e p e n d ~ t
Let us first examine the estimated effect of c ~ ~nd t i ~ on the uriity of
an information bundle. Inspection of table 2 s h ~ g tlaat ffl all f~ur c ~ s , the
estimated cost eoeflieient is negative. The ~'~&ated time ¢oe~eie|at is
negative, in all models except that for m a l ~ f-~sidet%ag a refrigerator
purchase. The reported t-statistics indicate t l ~ the e0st parameters are
estimated much more precisely than are the tirh( t~aramet~rs. For t/~e eleve~
female subjects, the implicit value of time is $ 0 . ~ t¢~r hour as estimated from
the refrigerator experiments and $0.34 per hour ,P~ estimot~d from the mixer
experiments. For the nine males, it is $1.62 pe r ~ u r as ~timated from the
mixer experiments.
Now consider the estimates for the values fl, d.¢ ¢t~e albtnative informatio~
bundles. The bundles A through H provide the f~StLme~" With a~ i~ereasing
range of information. Hence, expected utility tl~/)~ pr~die~ that ~ e ~ h of
the four models, 0-=BA<fls<... <fin- In fact, tb~ ~ t i m a # s for model (i) are
strictly increasing. The estimates for models (ii~ (}~i), ~ d (iv) more or less
rise as one moves from bundle A to B, C, D, a ~ ~ and 0"gin here to bundle
H. The estimates for fl~ and fla Ln these model/~}e clearly lower, however,
than are the estimates for/~. Thus, the pattern/~ the esrr~atvs ¢cjr.f<~rras on
the whole with expected utility theory. At t h e f , ~ time, flue estimates for fls
and fla seem to indicate a deviation from the & ~ / ,

4. Next steps
The rapid evolution of telecommunications / ~ tr~r~gbort i~rastructure
120 C.F. Manskl and I. Salomon, The deri'~wav2lfor teleshol~ping

may significantly affect the spatial distribution of human activities. Hence, we

must better understand the relative demand for different modes of communi-
cating information.
This paper has made a start at a formal investigation of telecoms demand
as derived from decisions to acquire information. The paper has shown how
empirical analysis of telecoms demand can be rooted in a model of rational
information gathering. Obviously, the work presented here is only a
beginning.
The model of section 2 provides a general analytical framework that has
been only partially exploited in the empirical analysis of section 3. We have
shown how the effects of cost on shopping behavior may be forecast but
have not indicated how to predict the effects of changes in the information
content of alternative shopping bundles. Our small pilot study did not
specify the media by which shopping information is transmitted. Nor did we
address the functions shopping may fulfill for consumers beyond the acqui-
sition of product information, in particular, social role playieg.
Many basic questions remain open. Among these, we are particularly
concerned with the fact that the expected utility model of decision making
ignores the possibility of information overloading. New telecoms technologies
can potentially provide consumers with suc~ extensive information as to
make unrealistic the traditional economic assumption of unlimited infer-
marion processing capacity. An attempt to grapple with aspects of this
question has been made in Manski (1981). In future work, we plan to
examine its implications for telecoms demand analysis.
We also plan to examine information gathering activities other than
shopping that lead to telecoms consumption. We are most interested in cases
where information may be gathered by travel or by telecoms. In the present
paper, we ha-Co emphasized that tefeshopping and store shopping are
alternative media for information transmission. We woBld like to examine
the decisions of fi~ms to transact business by face-to-face meetings., on the
one hand, or by telephone or teieconferen.~, on the other.
Third, we hope to investigate the relationship between an agent's telecoms
consumption and his access to telecoms services° A priori, it seems reason-
able to assume a two-stage process. Cc~nsidering his expected utilization
under each available service configuration, the agent select~ an ex ante
optimal set of services. Then, as assumed in the present paper, the agent
chooses his telecoms consumption conditional on his existing teiecoms
service. In earlier work, one of us has developed a simple version of such a
'putty-clay" model for the analysis of telephone service and usage decisions
[Manski (1984)].
 C.F. Manski and I. Salomon, The demand for teleshopping 121

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