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Costly multi-unit search

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  • Carrasco, Jose A.
  • Harrison, Rodrigo

Abstract

We formulate and solve a costly multi-unit search problem for the optimal selling of a stock of goods. Our showcase application is an inventory liquidation problem with holding costs, such as warehousing, salaries or floor planning. A seller faces a stream of buyers periodically arriving with random capped demands. At each decision point, he decides how to price each unit and also whether to stop searching or not. We set this as a dynamic programming problem and solve it inductively by characterizing optimal search rules and reservation prices. Our inductive logic does not rely in the use of the first order conditions for optimal pricing and optimal search decisions.

Suggested Citation

  • Carrasco, Jose A. & Harrison, Rodrigo, 2023. "Costly multi-unit search," European Economic Review, Elsevier, vol. 154(C).
    • Handle: RePEc:eee:eecrev:v:154:y:2023:i:c:s0014292123000612
    DOI: 10.1016/j.euroecorev.2023.104432
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    More about this item

    Keywords

    Search theory; Multi unit search; Inventory;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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