Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare
AbstractThis paper studies advertising, price ceilings and taxes in a sequential search model with bilateral heterogeneities in production and search costs. We estimate equilibria using a genetic algorithm (GA) applied to over 100 market scenarios, each differing based on the number of firms, number of consumers, existence of price ceilings or taxes, costs of production, costs of advertising, consumers' susceptibility to advertising and consumers' search costs. We compare our equilibrium results to those of the standard theoretical consumer search literature and analyze the welfare effects of advertising, price ceilings and sales taxes. We find that price ceilings and uninformative advertising can improve welfare, especially if search costs are sufficiently high.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington in its series Caepr Working Papers with number 2008-010.
Length: 29 pages
Date of creation: Apr 2008
Date of revision:
Sequential Search Models; Genetic Algorithms; Price Ceilings; Taxes; Advertising; Welfare;
Find related papers by JEL classification:
- C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
- D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- M37 - Business Administration and Business Economics; Marketing; Accounting - - Marketing and Advertising - - - Advertising
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-05-10 (All new papers)
- NEP-CMP-2008-05-10 (Computational Economics)
- NEP-COM-2008-05-10 (Industrial Competition)
- NEP-MIC-2008-05-10 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Holland, John H & Miller, John H, 1991. "Artificial Adaptive Agents in Economic Theory," American Economic Review, American Economic Association, vol. 81(2), pages 365-71, May.
- Benabou Roland, 1993.
"Search Market Equilibrium, Bilateral Heterogeneity, and Repeat Purchases,"
Journal of Economic Theory,
Elsevier, vol. 60(1), pages 140-158, June.
- Benabou, Roland, 1988. "Search market equilibrium bilateral heterogeneity and repeat purchases," CEPREMAP Working Papers (Couverture Orange) 8806, CEPREMAP.
- Riechmann, Thomas, 2001. "Two Notes on Replication in Evolutionary Modelling," Hannover Economic Papers (HEP) dp-239, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
- Leombruni, Roberto & Richiardi, Matteo, 2005. "Why are economists sceptical about agent-based simulations?," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 355(1), pages 103-109.
- Carlson, John A & McAfee, R Preston, 1983. "Discrete Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 480-93, June.
- MacMinn, Richard D, 1980. "Search and Market Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 308-27, April.
- Keenan, Donald C. & O'Brien, Mike J., 1993. "Competition, collusion, and chaos," Journal of Economic Dynamics and Control, Elsevier, vol. 17(3), pages 327-353, May.
- Rob, Rafael, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 487-504, July.
- Janssen, Maarten C.W. & Non, Marielle C., 2008.
"Advertising and consumer search in a duopoly model,"
International Journal of Industrial Organization,
Elsevier, vol. 26(1), pages 354-371, January.
- Maarten C.W. Janssen & Mariëlle C. Non, 2005. "Advertising and Consumer Search in a Duopoly Model," Tinbergen Institute Discussion Papers 05-022/1, Tinbergen Institute.
- Tony Curson Price, 1997. "Using co-evolutionary programming to simulate strategic behaviour in markets," Levine's Working Paper Archive 588, David K. Levine.
- Mark N. Hertzendorf, 1993. "I'm Not a High-Quality Firm -- But I Play One on TV," RAND Journal of Economics, The RAND Corporation, vol. 24(2), pages 236-247, Summer.
- Andreoni, J. & Miller, J.H., 1990. "Auctions With Adaptive Artificially Intelligent Agents," Working papers 90-32, Wisconsin Madison - Social Systems.
- Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc.
- 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.
- Matteo Richiardi & Roberto Leombruni & Nicole J. Saam & Michele Sonnessa, 2006.
"A Common Protocol for Agent-Based Social Simulation,"
Journal of Artificial Societies and Social Simulation,
Journal of Artificial Societies and Social Simulation, vol. 9(1), pages 15.
- Roberto Leombruni & Matteo Richiardi & Nicole J. Saam & Michele Sonnessa, 2005. "A Common Protocol for Agent-Based Social Simulation," LABORatorio R. Revelli Working Papers Series 47, LABORatorio R. Revelli, Centre for Employment Studies.
- Rauh, Michael T., 2004. "Wage and price controls in the equilibrium sequential search model," European Economic Review, Elsevier, vol. 48(6), pages 1287-1300, December.
- Riechmann, Thomas, 2001. "Genetic algorithm learning and evolutionary games," Journal of Economic Dynamics and Control, Elsevier, vol. 25(6-7), pages 1019-1037, June.
- Albin, Peter & Foley, Duncan K., 1992. "Decentralized, dispersed exchange without an auctioneer : A simulation study," Journal of Economic Behavior & Organization, Elsevier, vol. 18(1), pages 27-51, June.
- Ali Hortaç Su & 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, MIT Press, vol. 119(2), pages 403-456, May.
- Ian McCarthy, 2008. "Advertising Intensity and Welfare in an Equilibrium Search Model," Caepr Working Papers 2008-003, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
- Robert Marks, 2007. "Validating Simulation Models: A General Framework and Four Applied Examples," Computational Economics, Society for Computational Economics, vol. 30(3), pages 265-290, October.
- Robert, Jacques & Stahl, Dale O, II, 1993. "Informative Price Advertising in a Sequential Search Model," Econometrica, Econometric Society, vol. 61(3), pages 657-86, May.
- Tony Curzon Price, 1997. "Using co-evolutionary programming to simulate strategic behaviour in markets," Journal of Evolutionary Economics, Springer, vol. 7(3), pages 219-254.
- Robert Jump, 2013. "Results on the Stability of a Simple Wage Posting Model," Studies in Economics 1319, Department of Economics, University of Kent.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Center for Applied Economics and Policy Research).
If references are entirely missing, you can add them using this form.