IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v68y2022i5p3904-3924.html
   My bibliography  Save this article

Optimal Search and Discovery

Author

Listed:
  • Rafael P. Greminger

    (Department of Econometrics & Operations Research, Tilburg University, Tilburg 5000 LE, Netherlands)

Abstract

This paper studies a search problem in which a consumer is initially aware of only a few products. At every point in time, the consumer then decides between searching among alternatives of which he is already aware and discovering more products. I show that the optimal policy for this search and discovery problem is fully characterized by tractable reservation values. Moreover, I prove that a predetermined index fully specifies the purchase decision of a consumer following the optimal search policy. Finally, a comparison highlights differences to classical random and directed search.

Suggested Citation

  • Rafael P. Greminger, 2022. "Optimal Search and Discovery," Management Science, INFORMS, vol. 68(5), pages 3904-3924, May.
    • Handle: RePEc:inm:ormnsc:v:68:y:2022:i:5:p:3904-3924
    DOI: 10.1287/mnsc.2021.4085
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.2021.4085
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.2021.4085?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Rothschild, Michael, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown," Journal of Political Economy, University of Chicago Press, vol. 82(4), pages 689-711, July/Aug..
    2. Susan Athey & Glenn Ellison, 2011. "Position Auctions with Consumer Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1213-1270.
    3. Yuxin Chen & Song Yao, 2017. "Sequential Search with Refinement: Model and Application with Click-Stream Data," Management Science, INFORMS, vol. 63(12), pages 4345-4365, December.
    4. Dan Yavorsky & Elisabeth Honka & Keith Chen, 2021. "Consumer search in the U.S. auto industry: The role of dealership visits," Quantitative Marketing and Economics (QME), Springer, vol. 19(1), pages 1-52, March.
    5. Michael Choi & Anovia Yifan Dai & Kyungmin Kim, 2018. "Consumer Search and Price Competition," Econometrica, Econometric Society, vol. 86(4), pages 1257-1281, July.
    6. T. Tony Ke & Zuo-Jun Max Shen & J. Miguel Villas-Boas, 2016. "Search for Information on Multiple Products," Management Science, INFORMS, vol. 62(12), pages 3576-3603, December.
    7. Ali Hortaçsu & Chad Syverson, 2004. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 403-456.
    8. Raluca M. Ursu, 2018. "The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions," Marketing Science, INFORMS, vol. 37(4), pages 530-552, August.
    9. Sergei Koulayev, 2014. "Search for differentiated products: identification and estimation," RAND Journal of Economics, RAND Corporation, vol. 45(3), pages 553-575, September.
    10. Armstrong, Mark & Vickers, John, 2015. "Which demand systems can be generated by discrete choice?," Journal of Economic Theory, Elsevier, vol. 158(PA), pages 293-307.
    11. Mark Armstrong, 2017. "Ordered Consumer Search," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 989-1024.
    12. Bikhchandani, Sushil & Sharma, Sunil, 1996. "Optimal search with learning," Journal of Economic Dynamics and Control, Elsevier, vol. 20(1-3), pages 333-359.
    13. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 84(1), pages 113-126.
    14. Ke, T. Tony & Villas-Boas, J. Miguel, 2019. "Optimal learning before choice," Journal of Economic Theory, Elsevier, vol. 180(C), pages 383-437.
    15. Simon P. Anderson & Regis Renault, 1999. "Pricing, Product Diversity, and Search Costs: A Bertrand-Chamberlin-Diamond Model," RAND Journal of Economics, The RAND Corporation, vol. 30(4), pages 719-735, Winter.
    16. Babur De los Santos & Sergei Koulayev, 2017. "Optimizing Click-Through in Online Rankings with Endogenous Search Refinement," Marketing Science, INFORMS, vol. 36(4), pages 542-564, July.
    17. Babur De Los Santos & Ali Hortacsu & Matthijs R. Wildenbeest, 2012. "Testing Models of Consumer Search Using Data on Web Browsing and Purchasing Behavior," American Economic Review, American Economic Association, vol. 102(6), pages 2955-2980, October.
    18. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey: Part I," Economic Inquiry, Western Economic Association International, vol. 14(2), pages 155-189, June.
    19. Burdett, Kenneth & Judd, Kenneth L, 1983. "Equilibrium Price Dispersion," Econometrica, Econometric Society, vol. 51(4), pages 955-969, July.
    20. Grégory Jolivet & Hélène Turon, 2019. "Consumer Search Costs and Preferences on the Internet," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 86(3), pages 1258-1300.
    21. Anindya Ghose & Panagiotis G. Ipeirotis & Beibei Li, 2014. "Examining the Impact of Ranking on Consumer Behavior and Search Engine Revenue," Management Science, INFORMS, vol. 60(7), pages 1632-1654, July.
    22. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-654, May.
    23. Bart J. Bronnenberg & Jun B. Kim & Carl F. Mela, 2016. "Zooming In on Choice: How Do Consumers Search for Cameras Online?," Marketing Science, INFORMS, vol. 35(5), pages 693-712, September.
    24. Fernando Branco & Monic Sun & J. Miguel Villas-Boas, 2012. "Optimal Search for Product Information," Management Science, INFORMS, vol. 58(11), pages 2037-2056, November.
    25. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
    26. Elisabeth Honka, 2014. "Quantifying search and switching costs in the US auto insurance industry," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 847-884, December.
    27. Lippman, Steven A & McCall, John J, 1976. "The Economics of Job Search: A Survey," Economic Inquiry, Western Economic Association International, vol. 14(3), pages 347-368, September.
    28. Olszewski, Wojciech & Weber, Richard, 2015. "A more general Pandora rule?," Journal of Economic Theory, Elsevier, vol. 160(C), pages 429-437.
    29. Doval, Laura, 2018. "Whether or not to open Pandora's box," Journal of Economic Theory, Elsevier, vol. 175(C), pages 127-158.
    30. Rosenfield, Donald B. & Shapiro, Roy D., 1981. "Optimal adaptive price search," Journal of Economic Theory, Elsevier, vol. 25(1), pages 1-20, August.
    31. Michael Rothschild, 1974. "Searching for the Lowest Price When the Distribution of Prices Is Unknown: A Summary," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 1, pages 293-294, National Bureau of Economic Research, Inc.
    32. Adam, Klaus, 2001. "Learning While Searching for the Best Alternative," Journal of Economic Theory, Elsevier, vol. 101(1), pages 252-280, November.
    33. Han Hong & Matthew Shum, 2006. "Using price distributions to estimate search costs," RAND Journal of Economics, RAND Corporation, vol. 37(2), pages 257-275, June.
    34. Elisabeth Honka & Ali Hortaçsu & Maria Ana Vitorino, 2017. "Advertising, consumer awareness, and choice: evidence from the U.S. banking industry," RAND Journal of Economics, RAND Corporation, vol. 48(3), pages 611-646, August.
    35. Hana Choi & Carl F. Mela, 2019. "Monetizing Online Marketplaces," Marketing Science, INFORMS, vol. 38(6), pages 948-972, November.
    36. Kuksov, Dmitri, 2006. "Search, common knowledge, and competition," Journal of Economic Theory, Elsevier, vol. 130(1), pages 95-108, September.
    37. Xing Zhang & Tat Y. Chan & Ying Xie, 2018. "Price Search and Periodic Price Discounts," Management Science, INFORMS, vol. 64(2), pages 495-510, February.
    38. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Greminger, Rafael, 2019. "Optimal Search and Awareness Expansion," Other publications TiSEM ac47e6ff-42a4-4d70-addd-6, Tilburg University, School of Economics and Management.
    2. Rafael P. Greminger, 2019. "Optimal Search and Discovery," Papers 1911.07773, arXiv.org, revised Feb 2022.
    3. Greminger, Rafael, 2019. "Optimal Search and Awareness Expansion," Discussion Paper 2019-034, Tilburg University, Center for Economic Research.
    4. Raluca M. Ursu & Qingliang Wang & Pradeep K. Chintagunta, 2020. "Search Duration," Marketing Science, INFORMS, vol. 39(5), pages 849-871, September.
    5. Xing Zhang & Tat Y. Chan & Ying Xie, 2018. "Price Search and Periodic Price Discounts," Management Science, INFORMS, vol. 64(2), pages 495-510, February.
    6. Xinyu Cao & Yuting Zhu, 2024. "The Power of Commitment in Group Search," Marketing Science, INFORMS, vol. 43(1), pages 213-228, January.
    7. Anindya Ghose & Panagiotis G. Ipeirotis & Beibei Li, 2019. "Modeling Consumer Footprints on Search Engines: An Interplay with Social Media," Management Science, INFORMS, vol. 65(3), pages 1363-1385, March.
    8. T. Tony Ke & Song Lin, 2020. "Informational Complementarity," Management Science, INFORMS, vol. 66(8), pages 3699-3716, August.
    9. Rafael P. Greminger, 2022. "Heterogeneous Position Effects and the Power of Rankings," Papers 2210.16408, arXiv.org, revised Dec 2023.
    10. Raluca M. Ursu & Qianyun Zhang & Elisabeth Honka, 2023. "Search Gaps and Consumer Fatigue," Marketing Science, INFORMS, vol. 42(1), pages 110-136, January.
    11. Hana Choi & Carl F. Mela, 2019. "Monetizing Online Marketplaces," Marketing Science, INFORMS, vol. 38(6), pages 948-972, November.
    12. Yuxin Chen & Song Yao, 2017. "Sequential Search with Refinement: Model and Application with Click-Stream Data," Management Science, INFORMS, vol. 63(12), pages 4345-4365, December.
    13. Bart J. Bronnenberg & Jun B. Kim & Carl F. Mela, 2016. "Zooming In on Choice: How Do Consumers Search for Cameras Online?," Marketing Science, INFORMS, vol. 35(5), pages 693-712, September.
    14. Mark Armstrong, 2017. "Ordered Consumer Search," Journal of the European Economic Association, European Economic Association, vol. 15(5), pages 989-1024.
    15. Raluca M. Ursu & Daria Dzyabura, 2020. "Retailers’ product location problem with consumer search," Quantitative Marketing and Economics (QME), Springer, vol. 18(2), pages 125-154, June.
    16. Ke, T. Tony & Villas-Boas, J. Miguel, 2019. "Optimal learning before choice," Journal of Economic Theory, Elsevier, vol. 180(C), pages 383-437.
    17. Raluca Ursu & Stephan Seiler & Elisabeth Honka, 2023. "The Sequential Search Model: A Framework for Empirical Research," CESifo Working Paper Series 10264, CESifo.
    18. Jiarui Liu, 2021. "Sequential Search Models: A Pairwise Maximum Rank Approach," Papers 2104.13865, arXiv.org, revised Nov 2021.
    19. Jason Abaluck & Giovanni Compiani, 2020. "A Method to Estimate Discrete Choice Models that is Robust to Consumer Search," NBER Working Papers 26849, National Bureau of Economic Research, Inc.
    20. Ilya Morozov & Stephan Seiler & Xiaojing Dong & Liwen Hou, 2021. "Estimation of Preference Heterogeneity in Markets with Costly Search," Marketing Science, INFORMS, vol. 40(5), pages 871-899, September.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:ormnsc:v:68:y:2022:i:5:p:3904-3924. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.