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Search and Information Costs

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  • Miao, Chun-Hui

Abstract

In many markets, consumers obtain price quotes before making purchases. In this paper, I consider a fixed-sample size model of search for price quotes when sellers must spend resources to learn the true cost of providing goods/services. I find that (1) even with ex ante identical and rational consumers and sellers, there is price dispersion in the equilibrium; (2) the expected equilibrium price can decrease with the search cost of consumers; (3) consumers may engage in excessive search that is detrimental to their own welfare; (4) a decline in the search cost can leave consumers worse off, due to their lack of commitment.

Suggested Citation

  • Miao, Chun-Hui, 2017. "Search and Information Costs," MPRA Paper 83689, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:83689
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    File URL: https://mpra.ub.uni-muenchen.de/87102/8/MPRA_paper_87102.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Price dispersion; Precontract cost; Search cost; Sealed-bid Auction.;
    All these keywords.

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • L0 - Industrial Organization - - General

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