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Consumer Search Costs and Market Performance

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  • David, Douglas D
  • Holt, Charles A

Abstract

The authors conduct laboratory markets to evaluate the effects of consumer search costs on market performance. The primary research goal is to assess the behavioral relevance of Peter A. Diamond's (1971) paradoxical conclusion that the injection of a small consumer search cost alters the equilibrium price prediction from competitive to monopoly levels. Although monopoly prices are not consistently observed, the authors find that search costs do tend to raise prices. Additional experimentation indicates that below-monopoly prices are not explained by buyer avoidance of high-pricing sellers but that prices increase as search costs are raised. Copyright 1996 by Oxford University Press.

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Bibliographic Info

Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 34 (1996)
Issue (Month): 1 (January)
Pages: 133-51

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Handle: RePEc:oup:ecinqu:v:34:y:1996:i:1:p:133-51

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Cited by:
  1. Ralph-C Bayer & Changxia Ke, 2010. "Discounts and Consumer Search Behavior: The Role of Framing," School of Economics Working Papers 2010-21, University of Adelaide, School of Economics.
  2. Timothy N. Cason & Charles Noussair, 2007. "A Market With Frictions In The Matching Process: An Experimental Study," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 48(2), pages 665-691, 05.
  3. Cason, Timothy N. & Friedman, Daniel, 2003. "Buyer search and price dispersion: a laboratory study," Journal of Economic Theory, Elsevier, vol. 112(2), pages 232-260, October.
  4. Baylis, Kathy & Perloff, Jeffrey M., 2001. "Price Dispersion on the Internet: Good Firms and Bad Firms," Institute for Research on Labor and Employment, Working Paper Series qt2t0770rn, Institute of Industrial Relations, UC Berkeley.
  5. Ralph-C Bayer & Changxia Ke, 2010. "Rockets and Feathers in the Laboratory," School of Economics Working Papers 2010-20, University of Adelaide, School of Economics.
  6. ANDERSON, Simon & de PALMA, André, 2003. "Price dispersion," CORE Discussion Papers 2003032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
  8. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," Tinbergen Institute Discussion Papers 04-071/1, Tinbergen Institute.
  9. Dmitry Ryvkin & Danila Serra, 2013. "Does Competition Among Public Officials Reduce Corruption? An Experiment," Departmental Working Papers 1301, Southern Methodist University, Department of Economics.
  10. Ralph-C Bayer & Changxia Ke, 2011. "Are "Rockets and Feathers" Caused by Search or Informational Frictions," Working Papers are_rockets_and_feathers_, Max Planck Institute for Tax Law and Public Finance.
  11. Klaus Adam, 2001. "Competitive Prices in Markets with Search and Information Frictions," CSEF Working Papers 55, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  12. Cason, Timothy N. & Datta, Shakun, 2006. "An experimental study of price dispersion in an optimal search model with advertising," International Journal of Industrial Organization, Elsevier, vol. 24(3), pages 639-665, May.
  13. Maarten C.W. Janssen & Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," Tinbergen Institute Discussion Papers 04-071/1, Tinbergen Institute.
  14. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
  15. Michael R. Baye & John Morgan, 2004. "Price Dispersion in the Lab and on the Internet: Theory and Evidence," RAND Journal of Economics, The RAND Corporation, vol. 35(3), pages 448-466, Autumn.

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