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Strategic Search Theory

Reinganum, Jennifer F. (1981) Strategic Search Theory. Social Science Working Paper, 353. California Institute of Technology , Pasadena, CA.

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This paper combines the “theory of search”—the application of optimal stopping rules to decision-making under uncertainty—with concepts from the theory of games in order to analyze new product development. A development trial is envisioned as a random drawing of a production cost level, and a strategy is a rule describing conditions under which no further development is desired—a stopping rule. Nash equilibrium in stopping rules is shown to exist and possess the reservation property. The possibility of multiple equilibria implies that the usual comparative statics results need not hold in equilibrium—e.g., an increase in firm i's development costs may result in an increase in the firm's development activity.

Item Type:Report or Paper (Working Paper)
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Additional Information:Revised. Original dated to October 1980. I would like to thank John Cross, John Roberts and the members of the Caltech Theory Workshop for helpful comments and discussion. Published as Reinganum, Jennifer F. "Strategic search theory." International Economic Review (1982): 1-17.
Group:Social Science Working Papers
Subject Keywords:Production costs, Nash equilibrium, Capital costs, Game theory, Random variables, Economic theory, Monopoly, Profitability theory, Job hunting, Duopolies
Series Name:Social Science Working Paper
Issue or Number:353
Record Number:CaltechAUTHORS:20171006-162605306
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:82196
Deposited By: Jacquelyn Bussone
Deposited On:09 Oct 2017 22:13
Last Modified:03 Oct 2019 18:51

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