How Increasing Supplier Search Cost Can Increase Welfare

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.
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Submitted on : Sunday, June 3, 2018 - 10:23:20 AM
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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), ⟨10.1515/bejte-2016-0048⟩. ⟨halshs-01806502⟩



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