32 520 lazear 131 billingsley 290 dufe 241 2 fc

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Unformatted text preview: q2 102.62 Parameter estimates and standard errors: nonsequential-search model Stokey-Lucas 3 5 .480 (.170) .288 (.433) Lazear 4 5 .364 (.926) .351 (.660) 27.76 (8.50) 84.70 Billingsley 3 5 .633 (.944) .309 (.310) 69.73 (68.12) 199.70 Duffie 3 5 .627 (1.248) .314 (.195) 35.48 (96.30) 109.13 .135 (.692) Search-cost distribution estimates 1 Fc ( 1) Stokey-Lucas 2.32 .520 Lazear 1.31 Billingsley 2.90 Duffie 2.41 2 Fc ( 2) .68 .636 .83 .285 .367 2.00 1.42 Fc ( 3) .058 .373 3 .232 .059 .57 .150 a Number of quantiles of search cost Fc that are estimated (see equation (5)). In practice, we set K and M to the largest possible values for which the parameter estimates converge. All combinations of larger K and/or larger M resulted in estimates that either did not converge or did not move from their starting values (suggesting that the parameters were badly identified). b Number of moment conditions used in the empirical likelihood estimation procedure (see equation (17)). c K −1 ˜ ˜ ˜ ˜ For each product, only estimates for q1 , . . . , q K −1 are reported; q K = 1 − qk . k =1 Indifferent points k computed as E p(1:k ) − E p(1:k +1) (the expected price difference from having k versus k + 1 price quotes), using the empirical price distribution. Including shipping and handling charges. d © RAND 2006. EC 105. Industrial Organization. Fall 2011 (Matt Shum HSS, Lecture 12:Institute and price dispersion California Search of Technology) September 9, 2011 19 / 25 Sequential search model Sequential model Consumer decides after each search whether to accept lowest price to date, or continue searching. Optimal “reservation price” policy: accept first price which falls below some optimally chosen reservation price. NB: “no recall” EC 105. Industrial Organization. Fall 2011 (Matt Shum HSS, Lecture 12:Institute and price dispersion California Search of Technology) September 9, 2011 20 / 25 Sequential search model Consumers in sequential model Heterogeneity in search costs leads to heterogeneity in reservation prices For consumer with search cost ci , let z ∗ (ci ) denote price z which satisfies the following indifference condition z ci = 0 z (z − p )f (p )dp = F (p )dp . 0 Now, for consumer i , her reservation price is: ¯ pi∗ = min(z ∗ (ci ), p ). Let G denote CDF of reservation prices, ie. G (˜) = P (p ∗ ≤ p ). p ˜ EC 105. Industrial Organization. Fall 2011 (Matt Shum HSS, Lecture 12:Institute and price dispersion California Search of Technology) September 9, 2011 21 / 25 Sequential search model Firms in sequential search model Again, firms will be indifferent between all prices Let D (p ) denote the demand (number of people buying) from a store charging price p . Indifference condition is: (¯ − r )D (¯) = (p − r )D (p ) ⇔ p p (¯ − r ) ∗ (1 − G (¯)) = (p − r ) ∗ (1 − G (p ))...
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