Information and Firms’ Search Behavior

Information and communications technologies (ICTs) have spread rapidly over the past decade. There has been considerable interest in the effect of such technology on search costs, search behavior and welfare outcomes, particularly in developing countries. This paper investigates the impact of a new search technology, mobile phones, on traders’ search and marketing behavior in Niger. We construct a novel theoretical model of sequential search, in which traders engage in optimal search for the maximum sales price, net transport costs. The model predicts that the introduction of a new search technology, such as mobile telephones, will increase traders’ reservation sales prices and the number of markets over which they search. To test the predictions of the theoretical model, we use a unique market and trader panel dataset from Niger. We show that the duration of mobile phone coverage increases the number of markets over which traders search and their number of market contacts. This result increases nonlinearly in the duration of mobile phone coverage in a particular market, suggesting that the relationship between mobile phone coverage and traders’ search behavior is convex with larger effects accruing over time. This effect is also stronger for larger traders – namely those who trade over longer distances – but does not appear to have differential effects by gender, age, road quality or market size. These results provide important empirical evidence for search theoretic models that assume the existence of a causal link between search costs and search behavior and suggest potential welfare improvements.