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Optimal Search with Costly Recall

Author

Listed:
  • 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.

Suggested Citation

  • Maarten C.W. Janssen & Alexei Parakhonyak, 2007. "Optimal Search with Costly Recall," Tinbergen Institute Discussion Papers 08-002/1, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20080002
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    File URL: https://papers.tinbergen.nl/08002.pdf
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    References listed on IDEAS

    as
    1. Stahl, Dale O., 1996. "Oligopolistic pricing with heterogeneous consumer search," International Journal of Industrial Organization, Elsevier, vol. 14(2), pages 243-268.
    2. Reinganum, Jennifer F, 1979. "A Simple Model of Equilibrium Price Dispersion," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 851-858, August.
    3. Tse, Chung Yi, 2006. "New product introduction with costly search," Journal of Economic Dynamics and Control, Elsevier, vol. 30(12), pages 2775-2792, December.
    4. Kohn, Meir G. & Shavell, Steven, 1974. "The theory of search," Journal of Economic Theory, Elsevier, vol. 9(2), pages 93-123, October.
    5. Stahl, Dale O, II, 1989. "Oligopolistic Pricing with Sequential Consumer Search," American Economic Review, American Economic Association, vol. 79(4), pages 700-712, September.
    6. 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.
    7. Stigler, George J., 2011. "Economics of Information," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 5, pages 35-49.
    8. Morgan, Peter & Manning, Richard, 1985. "Optimal Search," Econometrica, Econometric Society, vol. 53(4), pages 923-944, July.
    9. Waldeck, Roger, 2008. "Search and price competition," Journal of Economic Behavior & Organization, Elsevier, vol. 66(2), pages 347-357, May.
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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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    More about this item

    Keywords

    Search; Costly Recall;

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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