Microeconomics · free preview
The Economics of Search
When finding a better price costs time, identical goods sell at scattered prices, search stops at a reservation price that weighs one more look against its cost, and the internet moved but did not abolish the dispersion.
1. Finding is costly
Finding is costly
2. The stopping rule
The stopping rule
3. The internet's arithmetic
The internet's arithmetic
4. The module's ledger
The module's ledger
5. The dispersion logic
Why do identical goods sell at different prices when search is costly?
6. The stopping rule
You hold a 30 dollar quote. One more search costs 2 and would return a price of 24 or 36 with equal probability. What should you do, and by the reservation logic?
7. The search's expected gain
One more store visit costs 3 dollars in time. You believe the visit yields a price 10 dollars lower or 4 dollars higher than your current quote with equal probability. Compute the expected gain from the visit in dollars, and write the number.
8. Why prices refuse to converge
Why do identical goods sell at different prices when search is costly?
9. The stopping rule
You hold a 30 dollar quote. One more search costs 2 dollars and could plausibly save you 6 in expectation. What should you do?
10. The search's net value
One more store visit costs 4 dollars in time, and you believe it would lower your price by 6 dollars in expectation. Compute the expected net gain from the visit, and write the number.
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