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A CONTEXTUAL ANALYSIS OF THE JOURNEY‐TO‐SHOP WITH PRICE UNCERTAINTY *
Author(s) -
Narula Subhash C.,
Lentnek Barry,
Harwitz Mitchell
Publication year - 1987
Publication title -
journal of regional science
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.171
H-Index - 79
eISSN - 1467-9787
pISSN - 0022-4146
DOI - 10.1111/j.1467-9787.1987.tb01170.x
Subject(s) - balance (ability) , plan (archaeology) , ex ante , economics , cash , microeconomics , random search , econometrics , computer science , finance , medicine , history , archaeology , algorithm , physical medicine and rehabilitation , macroeconomics
In this paper we extend the contextual theory of demand to consider rational consumer behavior when the household must deal with some random fluctuation in the prices it faces. Prices at stores reflect “advertised specials,” which are potential cost reductions random across goods, and random in‐store price changes, which can only be observed by visiting the store. Our theory of rational behavior includes: (1) calculation by the household of an ex ante plan for its planning period; (2) modification to take account of advertised specials; and (3) rational search behavior to take advantage of random fluctuations observable only on a given day. This theory utilizes an active cash balance as a buffer against random variations from planned daily expenditures, and reformulations of trip circuits to account for patterns of cost‐minimizing search.