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The impact of online low search costs on firms' incentives to invest in quality

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  • Yassine Badra

Abstract

The growing use of the Internet has made search costs lower for consumers. We study the effect of this on the incentives for firms to invest in quality. We assume that there are firms producing high‐quality products and others producing low‐quality products; we also assume that the market share of the latter is higher than that of the former. Besides, we analyse the changes of both the revenue effect and the quantity effect; we show that they go in the same nonintuitive direction. In other words, when search costs decrease, the incentives to invest in quality increase.

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  • Yassine Badra, 2020. "The impact of online low search costs on firms' incentives to invest in quality," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 41(8), pages 1629-1633, December.
    • Handle: RePEc:wly:mgtdec:v:41:y:2020:i:8:p:1629-1633
    DOI: 10.1002/mde.3209
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