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Search Costs and Context Effects

Author

Listed:
  • Heiko Karle
  • Florian Kerzenmacher
  • Heiner Schumacher
  • Frank Verboven

Abstract

Empirical search cost estimates are often large and increasing in the size of the transaction. We conduct an online search experiment in which we manipulate the price scale while keeping the physical search effort per price quote constant. Additionally, we obtain a direct measure of subjects' opportunity costs of time. Using a standard search model, we confirm that search cost estimates are large and increasing in the price scale. We then modify the model to incorporate context effects with respect to prices. This results in search cost estimates that are scale independent and correspond well to subjects' opportunity costs of time.

Suggested Citation

  • Heiko Karle & Florian Kerzenmacher & Heiner Schumacher & Frank Verboven, 2025. "Search Costs and Context Effects," American Economic Journal: Microeconomics, American Economic Association, vol. 17(2), pages 127-161, May.
    • Handle: RePEc:aea:aejmic:v:17:y:2025:i:2:p:127-61
    DOI: 10.1257/mic.20240115
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    References listed on IDEAS

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    1. Colin Camerer & Linda Babcock & George Loewenstein & Richard Thaler, 1997. "Labor Supply of New York City Cabdrivers: One Day at a Time," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 407-441.
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    3. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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