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A theory of search with recall and uncertain deadlines

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  • Brennan Platt

    (Brigham Young University)

  • Nuray Akin

    (University of Miami)

Abstract

We analyze an equilibrium search model where buyers seek to purchase a good before a deadline and face uncertainty regarding the availability of past price quotes in the future. Sellers cannot observe a potential buyer's remaining time until deadline nor his quote history, and hence post prices that weigh the probability of sale versus the profit once sold. The model's equilibrium can take one of three forms. In a late equilibrium, buyers initially forgo purchases, preferring to wait until the deadline. In an early equilibrium, any equilibrium offer is accepted as soon as it is received. In a full equilibrium, higher prices are turned down until near the deadline, while lower prices are immediately accepted. Equilibrium price and sales dynamics are determined by the time remaining until the deadline and the quote history of the consumer.

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2012 Meeting Papers with number 777.

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Date of creation: 2012
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Handle: RePEc:red:sed012:777

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  1. Diamond, Peter A., 1971. "A model of price adjustment," Journal of Economic Theory, Elsevier, vol. 3(2), pages 156-168, June.
  2. Landsberger, Michael & Peled, Dan, 1977. "Duration of offers, price structure, and the gain from search," Journal of Economic Theory, Elsevier, vol. 16(1), pages 17-37, October.
  3. Lazear, Edward P, 1986. "Retail Pricing and Clearance Sales," American Economic Review, American Economic Association, vol. 76(1), pages 14-32, March.
  4. Lee Sang-Yong T. & Png Ivan P.L., 2004. "Buyer Shopping Costs and Retail Pricing: An Indirect Empirical Test," Review of Marketing Science, De Gruyter, vol. 2(1), pages 1-22, July.
  5. Armstrong, Mark & Zhou, Jidong, 2010. "Conditioning prices on search behaviour," MPRA Paper 19985, University Library of Munich, Germany.
  6. Rob, Rafael, 1985. "Equilibrium Price Distributions," Review of Economic Studies, Wiley Blackwell, vol. 52(3), pages 487-504, July.
  7. Pashigian, B Peter & Bowen, Brian, 1991. "Why Are Products Sold on Sale? Explanations of Pricing Regularities," The Quarterly Journal of Economics, MIT Press, vol. 106(4), pages 1015-38, November.
  8. Andrew F. Daughety & Jennifer F. Reinganum, 1992. "Search Equilibrium with Endogenous Recall," RAND Journal of Economics, The RAND Corporation, vol. 23(2), pages 184-202, Summer.
  9. 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.
  10. Butters, Gerard R, 1977. "Equilibrium Distributions of Sales and Advertising Prices," Review of Economic Studies, Wiley Blackwell, vol. 44(3), pages 465-91, October.
  11. S. Nuray Akin & Brennan Platt, 2012. "Running Out of Time: Limited Unemployment Benefits and Reservation Wages," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 149-170, April.
  12. S. Nuray Akin & Brennan C. Platt, 2011. "Searching on a Deadline," Working Papers 2011-11, University of Miami, Department of Economics.
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