Searching for the Lowest Price When the Distribution of Prices Is Unknown

Publisher Summary This chapter describes the process of searching for the lowest price when the distribution of prices is unknown. Economists are interested in the rules that searchers follow because these rules determine the demand functions that sellers in such markets face and also determine, in part, the nature of the markets themselves. Although the only way to settle the question of what rules searchers follow is by observation, very little empirical work has been done on this problem. The qualitative behavior of persons searching optimally from unknown distributions is the same as that of persons searching optimally from known distributions. The problem is best stated by focusing on a very general and abstract formulation of the problem of optimal search. Economists can without great loss assume that the qualitative properties of demand functions that arise from optimal search from unknown distributions are the same as those that arise from optimal search from known distributions.

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