Abstract

http://ssrn.com/abstract=1127296
 
 

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Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare


Ian M. McCarthy


Institute for Health Care Research and Improvement; Southern Methodist University (SMU)

April 30, 2008

CAEPR Working Paper No. 2008-010

Abstract:     
This 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.

Number of Pages in PDF File: 29

JEL Classification: C63, D21, D43, D73, D83, M37

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Date posted: April 30, 2008  

Suggested Citation

McCarthy, Ian M., Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare (April 30, 2008). CAEPR Working Paper No. 2008-010. Available at SSRN: http://ssrn.com/abstract=1127296 or http://dx.doi.org/10.2139/ssrn.1127296

Contact Information

Ian M. McCarthy (Contact Author)
Institute for Health Care Research and Improvement ( email )
8080 N. Central Expressway
Suite 900
Dallas, TX 75206
United States
Southern Methodist University (SMU) ( email )
6212 Bishop Blvd.
Dallas, TX 75275
United States
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