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q2 102.62 Parameter estimates and standard errors: nonsequentialsearch model
StokeyLucas 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) Searchcost distribution estimates
1 Fc ( 1) StokeyLucas 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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 Spring '14
 Microeconomics, Pricing, Search theory, Matt Shum, Matt Shum HSS

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