Optimal Search and Awareness Expansion

CentER Discussion Paper No. 2019-034

35 Pages Posted: 5 Dec 2019

Date Written: November 18, 2019

Abstract

This paper introduces a search problem where a consumer has to first become aware of an alternative, before being able to search it. Initially, the consumer is aware of only a few alternatives. During search, the consumer sequentially decides between searching alternatives he is already aware of and expanding awareness to discover more products. I show that the optimal policy for this search problem is fully characterized by simple reservation values. Moreover, I prove that the purchase outcome of a consumer optimally solving the search problem is equivalent to the consumer simply choosing the product offering the largest value on a predetermined index.

Keywords: Sequential search, Limited awareness, Information acquisition

JEL Classification: D83

Suggested Citation

Greminger, Rafael, Optimal Search and Awareness Expansion (November 18, 2019). CentER Discussion Paper No. 2019-034, Available at SSRN: https://ssrn.com/abstract=3489765 or http://dx.doi.org/10.2139/ssrn.3489765

Rafael Greminger (Contact Author)

Tilburg University

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

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