Consumer search markets with costly revisits (Q2447151)

The authors consider the problem of consumer search for a good produced by a sequence of firms when consumers have to incur a cost to obtain information about prices and/or the good's characteristics. This problem is investigated in the frame of a normative approach. The predecessors of this investigation are papers by \textit{A. Wolinsky} [Q. J. Econ. 101, 493--511 (1986; Zbl 0604.90026)] and \textit{D. Stahl} [``Oligopolistic pricing with sequential consumer search'', Am. Econ. Rev. 79, No. 4, 700--712 (1989), \url{http://www.jstor.org/stable/1827927}]. In this paper, the custom ``perfect recall assumption'' is replaced by the assumption of ``costly revisits'' to stores already searched. The main object of modeling and investigation is the ``reservation price'' function which defines the stopping rule and which is defined as follows. Consumers have a choice whether or not to buy an alternative \(i\) out of a finite number of alternatives. The alternatives' prices \(p_{i}\) are distributed according to the distributions \(F_{i}(p)\). The expected value of continuing search depends on future period expected values. The smallest price in a sample of \(k - 1\) prices previously sampled is \(p_{k - 1}^{s}\). For each value of \(p_{k - 1}^{s}\) there is a unique value of \(p_{k}\) such that an individual consumer is indifferent between buying at \(p_{k}\) and either going back to one of the previously sampled firms and buying there or continuing the search. This value is denoted as ``reservation price'' \(\rho _{k}(p_{k - 1}^{s})\). The implications of costly revisits for the Wolinsky and Stahl search models are studied.