How Increasing Supplier Search Cost Can Increase Welfare

Zhiwen Li 1 Michael Arnold 2 Thierry Pénard 3
1 School of management Jiangsu University
2 Alfred Lerner College of Business and Economics
3 CREM - Centre de recherche en économie et management
Abstract : Reductions in search costs are generally found to increase efficiency and welfare. Using a simple search model we show that when an upstream firm incurs a search cost to identify a potential trading partner and the two parties then negotiate the wholesale price, a reduction in search cost can actually reduce welfare. Furthermore, in a market driven by seller search, a search cost of zero is never socially optimal.
Keywords : social welfare sequential search Nash bargaining search cost
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Journal articles
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https://halshs.archives-ouvertes.fr/halshs-01806502
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Submitted on : Sunday, June 3, 2018 - 10:23:20 AM
Last modification on : Sunday, January 12, 2020 - 10:19:36 PM

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Zhiwen Li, Michael Arnold, Thierry Pénard. How Increasing Supplier Search Cost Can Increase Welfare. B.E. Journal in Theoretical Economics, Topics in Theoretical Economics, De Gruyter, 2017, 18 (1), pp.online review. ⟨10.1515/bejte-2016-0048⟩. ⟨halshs-01806502⟩

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