Consumer Search with Uninformed Buyers and Imperfect Recall
Journal of Current Issues in Finance, Business, and Economics 3(2/3):275-282, 2009
Posted: 22 Sep 2013
Date Written: July 1, 2009
This paper analyzes two aspects of the standard sequential consumer search model: (1) the role of the consumer's ex ante information structure on market outcomes and search behavior; and (2) the effect of imperfect recall on market outcomes and search behavior. Simulated equilibria are generated using a Genetic Algorithm. This analysis shows that price dispersion increases (and average prices decrease) with consumers' ex ante knowledge of firm prices and with consumers' ability to recall previously visited firms. Conversely, search intensity increases with consumers' ex ante knowledge of firm prices and with consumers' ability to recall previously visited firms. Despite heterogeneous search costs and costs of production, the analysis shows that firms resort to homogeneous pricing (well above maximum marginal costs) if consumers' ability to recall previous price quotes is sufficiently low.
Keywords: search, imperfect information, genetic algorithms, evolutionary games
JEL Classification: C63, D21, D43, D73, D83, M37
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