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Market Frictions: A Unified Model of Search and Switching Costs

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  • Wilson, Chris M

Abstract

Despite the existence of two vast literatures, very little is known about the potential differences or interactions between search and switching costs. This paper demonstrates the benefits of examining the two frictions in unison. First, the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour and market prices. In many cases, policymakers may prefer to reduce search costs rather than switching costs. Second, the paper illustrates a simple methodology for estimating the magnitude of both costs while demonstrating the potential bias that can arise from a single-cost approach.

Suggested Citation

  • Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:13672
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    References listed on IDEAS

    as
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    12. Luis Cabral, 2012. "Switching Costs and Equilibrium Prices," Working Papers 12-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    13. Moraga-González, José Luis & Wildenbeest, Matthijs R., 2008. "Maximum likelihood estimation of search costs," European Economic Review, Elsevier, vol. 52(5), pages 820-848, July.
    14. Michael R. Baye & John Morgan & Patrick Scholten, 2006. "Information, Search, and Price Dispersion," Working Papers 2006-11, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    15. Ali Hortaçsu & Chad Syverson, 2004. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of S&P 500 Index Funds," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 403-456.
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    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Wilson, Chris M., 2016. "Information Matters: A Theoretical Comparison of Some Cross-Border Trade Barriers," EconStor Preprints 130180, ZBW - Leibniz Information Centre for Economics.
    2. Fabien Tripier, 2014. "A Search-Theoretic Approach to Efficient Financial Intermediation," Working Papers 2014-18, CEPII research center.
    3. Daniel Garcia & Jun Honda & Maarten Janssen, 2017. "The Double Diamond Paradox," American Economic Journal: Microeconomics, American Economic Association, vol. 9(3), pages 63-99, August.
    4. Michael Grubb, 2015. "Failing to Choose the Best Price: Theory, Evidence, and Policy," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 47(3), pages 303-340, November.
    5. Chris M Wilson, 2015. "Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade," Discussion Paper Series 2015_02, Department of Economics, Loughborough University, revised Feb 2015.
    6. Wilson, Chris M. & Garrod, Luke & Munro, Alistair, 2013. "Default effects, transaction costs, and imperfect information," Economics Letters, Elsevier, vol. 119(2), pages 213-215.
    7. Lee, Hwa Ryung, 2015. "An Empirical Study of the Effect of the Internet on Fares in the U.S. Airline Industry," KDI Journal of Economic Policy, Korea Development Institute (KDI), vol. 37(1), pages 1-18.
    8. Yves Ortiz, 2011. "Prices and Choices in the Swiss Health Care Insurance Market," Working Papers 11.09, Swiss National Bank, Study Center Gerzensee.

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    20. repec:spo:wpecon:info:hdl:2441/6143 is not listed on IDEAS
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    More about this item

    Keywords

    Search costs; Switching Costs; Market Friction;
    All these keywords.

    JEL classification:

    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

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    This paper has been announced in the following NEP Reports:

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