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

See all articles by Ian M. McCarthy

Ian M. McCarthy

Emory University - Department of Economics

Date Written: July 1, 2009

Abstract

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

Suggested Citation

McCarthy, Ian M., Consumer Search with Uninformed Buyers and Imperfect Recall (July 1, 2009). Journal of Current Issues in Finance, Business, and Economics 3(2/3):275-282, 2009, Available at SSRN: https://ssrn.com/abstract=2328756

Ian M. McCarthy (Contact Author)

Emory University - Department of Economics ( email )

1602 Fishburne Drive
Atlanta, GA 30322
United States

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