Monopoly pricing with buyer search.

In many shopping scenarios, e.g., in online shopping, customers have a largemenu of options to choose from. However, most of the buyers do not browse allthe options and make decision after considering only a small part of the menu.To study such buyer's behavior we consider the standard Bayesian monopolyproblem for a unit-demand buyer, where the monopolist displays the menudynamically page after a page to the buyer. The seller aims to maximize theexpected revenue over buyer's values which we assume are distributed i.i.d. Thebuyer incurs a fixed cost for browsing through one menu page and would stop ifthat cost exceeds the increase in her utility. We observe that the optimalposted price mechanism in our dynamic setting may have quite differentstructure than in the classic static scenario. We find a (relatively) simpleand approximately optimal mechanism, that uses part of the items as a "bait" tokeep the buyer interested for multiple rounds with low prices, while at thesame time showing many other expensive items.