Simulating Sequential Search Models with Genetic Algorithms: Analysis of Price Ceilings, Taxes, Advertising and Welfare

Ian McCarthy

No 2008-010, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: This paper studies advertising, price ceilings and taxes in a sequential search model with bilateral heterogeneities in production and search costs. We estimate equilibria using a genetic algorithm (GA) applied to over 100 market scenarios, each differing based on the number of firms, number of consumers, existence of price ceilings or taxes, costs of production, costs of advertising, consumers' susceptibility to advertising and consumers' search costs. We compare our equilibrium results to those of the standard theoretical consumer search literature and analyze the welfare effects of advertising, price ceilings and sales taxes. We find that price ceilings and uninformative advertising can improve welfare, especially if search costs are sufficiently high.

Keywords: Sequential Search Models; Genetic Algorithms; Price Ceilings; Taxes; Advertising; Welfare (search for similar items in EconPapers)
JEL-codes: C63 D21 D43 D73 D83 M37 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2008-04
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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