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Optimal Search with Costly Recall

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  • Maarten C.W. Janssen

    ()
    (Erasmus University Rotterdam)

  • Alexei Parakhonyak

    ()
    (Erasmus University Rotterdam)

Abstract

This paper builds a consumer search model where the cost of going back to stores already searched is explicitly taken into account. We show that the optimal search rule under costly recall is very different from the optimal search rule under perfect recall. Under costly recall, the optimal search behaviour is nonstationary and, moreover, the reservation price is not independent of previously sampled prices. We fully characterize the optimal search rule under costly recall when a finite number of firms draws price quotes from a given distribution.

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File URL: http://papers.tinbergen.nl/08002.pdf
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Bibliographic Info

Paper provided by Tinbergen Institute in its series Tinbergen Institute Discussion Papers with number 08-002/1.

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Date of creation: 11 Jan 2007
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Handle: RePEc:dgr:uvatin:20080002

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Web page: http://www.tinbergen.nl

Related research

Keywords: Search; Costly Recall;

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References

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  1. Waldeck, Roger, 2008. "Search and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 347-357, May.
  2. Jennifer F. Reinganum, 1978. "A Simple Model of Equilibrium Price Dispersion," Discussion Papers 335, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Maarten C. W. Janssen & José Luis Moraga-González, 2004. "Strategic Pricing, Consumer Search and the Number of Firms," Review of Economic Studies, Wiley Blackwell, vol. 71(4), pages 1089-1118, October.
  4. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
  5. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-44, July.
  6. Karni, Edi & Schwartz, Aba, 1977. "Search theory: The case of search with uncertain recall," Journal of Economic Theory, Elsevier, vol. 16(1), pages 38-52, October.
  7. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
  8. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213.
  9. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-54, May.
  10. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
  11. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
  12. Rob, Rafael, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 487-504, July.
  13. Janssen, Maarten C.W. & Moraga-Gonzalez, Jose Luis & Wildenbeest, Matthijs R., 2005. "Truly costly sequential search and oligopolistic pricing," International Journal of Industrial Organization, Elsevier, vol. 23(5-6), pages 451-466, June.
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Cited by:
  1. Maarten Janssen & Paul Pichler & Simon Weidenholzer, 2009. "Sequential Search with Incompletely Informed Consumers: Theory and Evidence from Retail Gasoline Markets," Vienna Economics Papers 0914, University of Vienna, Department of Economics.

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