IDEAS home Printed from https://ideas.repec.org/a/eee/ejores/v197y2009i2p667-674.html
   My bibliography  Save this article

Modeling the search for the least costly opportunity

Author

Listed:
  • Grosfeld-Nir, Abraham
  • Sarne, David
  • Spiegler, Israel

Abstract

With the continuing growth in the number of opportunities available at virtual stores over the Internet there is also a growing demand for the services of computer programs capable of scanning a large number of stores in a very short time. We assume that the cost associated with each scan is linear in the number of stores scanned, and that the resulting list of price quotes is not always satisfactory to the customer, in which case an additional scan is performed, and so on. In such a reality the customer, wishing to minimize her expected cost, must specify the requested sample size and a rule (control limit) to stop the search. In the context of search theory, the above search model can be categorized as "fixed-sample-size, sequential, with infinite horizon". According to this model the expected search cost is a function of two decision variables: the sample size and the control limit. We prove that for arbitrary sample size the expected search cost is either quasi-convex or strictly decreasing in the control limit, and that the optimal expected search cost is quasi-convex in the sample size. These properties allow an efficient calculation of the optimal policy. We also develop analytic formulas to calculate the cost's variance, allowing customers to choose a slightly higher expected cost if there is a considerable decrease in the variance. Finally, we present detailed examples for price quotes that are distributed uniformly or exponentially.

Suggested Citation

  • Grosfeld-Nir, Abraham & Sarne, David & Spiegler, Israel, 2009. "Modeling the search for the least costly opportunity," European Journal of Operational Research, Elsevier, vol. 197(2), pages 667-674, September.
  • Handle: RePEc:eee:ejores:v:197:y:2009:i:2:p:667-674
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0377-2217(08)00592-4
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to search for a different version of it.

    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. Herbert A. Simon, 1955. "A Behavioral Model of Rational Choice," The Quarterly Journal of Economics, Oxford University Press, vol. 69(1), pages 99-118.
    3. Clay, Karen, et al, 2002. "Retail Strategies on the Web: Price and Non-price Competition in the Online Book Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 50(3), pages 351-367, September.
    4. Manning, Richard & Manning, Julian R. A., 1997. "Budget-constrained search," European Economic Review, Elsevier, vol. 41(9), pages 1817-1834, December.
    5. Steven Salop & Joseph Stiglitz, 1977. "Bargains and Ripoffs: A Model of Monopolistically Competitive Price Dispersion," Review of Economic Studies, Oxford University Press, vol. 44(3), pages 493-510.
    6. Benhabib, Jess & Bull, Clive, 1983. "Job Search: The Choice of Intensity," Journal of Political Economy, University of Chicago Press, vol. 91(5), pages 747-764, October.
    7. Cason, Timothy N. & Friedman, Daniel, 2003. "Buyer search and price dispersion: a laboratory study," Journal of Economic Theory, Elsevier, vol. 112(2), pages 232-260, October.
    8. R. Manning & P. B. Morgan, 1982. "Search and Consumer Theory," Review of Economic Studies, Oxford University Press, vol. 49(2), pages 203-216.
    9. Jovanovic, Boyan & MacDonald, Glenn M, 1994. "Competitive Diffusion," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 24-52, February.
    10. 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.
    11. J. J. McCall, 1970. "Economics of Information and Job Search," The Quarterly Journal of Economics, Oxford University Press, vol. 84(1), pages 113-126.
    12. Jeffrey R. Brown & Austan Goolsbee, 2002. "Does the Internet Make Markets More Competitive? Evidence from the Life Insurance Industry," Journal of Political Economy, University of Chicago Press, vol. 110(3), pages 481-507, June.
    13. Burdett, Kenneth, 1989. "Search Market Models: A Survey," Working Paper Series 234, Research Institute of Industrial Economics.
    14. Erik Brynjolfsson & Michael D. Smith, 2000. "Frictionless Commerce? A Comparison of Internet and Conventional Retailers," Management Science, INFORMS, vol. 46(4), pages 563-585, April.
    15. Edward A. Baryla, Jr. & Leonard V. Zumpano & Harold W. Elder, 2000. "An Investigation of Buyer Search in the Residential Real Estate Market under Different Market Conditions," Journal of Real Estate Research, American Real Estate Society, vol. 20(1), pages 75-91.
    16. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-944, July.
    17. McKenna, Christopher J, 1986. "Theories of Individual Search Behaviour," Bulletin of Economic Research, Wiley Blackwell, vol. 38(3), pages 189-207, September.
    18. 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.
    19. Bental, Benjamin & Peled, Dan, 1996. "The Accumulation of Wealth and the Cyclical Generation of New Technologies: A Search Theoretic Approach," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 37(3), pages 687-718, August.
    20. 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.
    21. John F. Muth, 1986. "Search Theory and the Manufacturing Progress Function," Management Science, INFORMS, vol. 32(8), pages 948-962, August.
    22. Benjamin Bental & Dan Peled, 2002. "Quantitative growth effects of subsidies in a search theoretic R&D model," Journal of Evolutionary Economics, Springer, vol. 12(4), pages 397-423.
    23. Gal, Shmuel & Landsberger, Michael & Levykson, Benny, 1981. "A Compound Strategy for Search in the Labor Market," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 597-608, October.
    24. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    25. George J. Stigler, 1961. "The Economics of Information," Journal of Political Economy, University of Chicago Press, vol. 69, pages 213-213.
    26. Peter B. Morgan, 1983. "Search and Optimal Sample Sizes," Review of Economic Studies, Oxford University Press, vol. 50(4), pages 659-675.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Chhabra, Meenal & Das, Sanmay & Sarne, David, 2014. "Expert-mediated sequential search," European Journal of Operational Research, Elsevier, vol. 234(3), pages 861-873.

    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:eee:ejores:v:197:y:2009:i:2:p:667-674. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu). General contact details of provider: http://www.elsevier.com/locate/eor .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.