IDEAS home Printed from https://ideas.repec.org/a/bpj/bejtec/v18y2018i1p7n4.html
   My bibliography  Save this article

How Increasing Supplier Search Cost Can Increase Welfare

Author

Listed:
  • Li Zhiwen

    (School of Management, Jiangsu University, Zhenjiang, China)

  • Arnold Michael

    (Department of Economics, Alfred Lerner College of Business and Economics, University of Delaware, Newark, DE, 19716, USA)

  • Penard Thierry

    (CREM, University of Rennes 1, Rennes, France)

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.

Suggested Citation

  • Li Zhiwen & Arnold Michael & Penard Thierry, 2018. "How Increasing Supplier Search Cost Can Increase Welfare," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 18(1), pages 1-7, January.
    • Handle: RePEc:bpj:bejtec:v:18:y:2018:i:1:p:7:n:4
    DOI: 10.1515/bejte-2016-0048
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/bejte-2016-0048
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/bejte-2016-0048?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Arnold, Michael A & Lippman, Steven A, 1998. "Posted Prices versus Bargaining in Markets with Asymmetric Information," Economic Inquiry, Western Economic Association International, vol. 36(3), pages 450-457, July.
    2. David Lucking-Reiley & Daniel F. Spulber, 2001. "Business-to-Business Electronic Commerce," Journal of Economic Perspectives, American Economic Association, vol. 15(1), pages 55-68, Winter.
    3. Eugene Orlov, 2011. "How Does The Internet Influence Price Dispersion? Evidence From The Airline Industry," Journal of Industrial Economics, Wiley Blackwell, vol. 59(1), pages 21-37, March.
    4. Arnold, Michael A & Lippman, Steven A, 1995. "Selecting a Selling Institution: Auctions versus Sequential Search," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 1-23, January.
    5. Andrei Hagiu & Bruno Jullien, 2011. "Why do intermediaries divert search?," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 337-362, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Domingo, Sonny N. & Olaguera, Ma. Divina C., 2017. "Review of High-Value Agriculture in the Philippines with Comprehensive Subsectoral Focus: Livestock Industries," Discussion Papers DP 2017-51, Philippine Institute for Development Studies.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Guido Fioretti, 2004. "Will industrial districts exploit B2B? A local experience and a general assessment," Netnomics, Springer, vol. 6(3), pages 221-242, December.
    2. Dirk Bergemann & Alessandro Bonatti, 2024. "Data, Competition, and Digital Platforms," American Economic Review, American Economic Association, vol. 114(8), pages 2553-2595, August.
    3. Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    4. Alexandre de Corniere, 2013. "Search Advertising," Economics Series Working Papers 649, University of Oxford, Department of Economics.
    5. Moraga-Gonzalez, Jose L. & Wildenbeest, Matthijs R., 2011. "Comparison sites," IESE Research Papers D/933, IESE Business School.
      • Jose Luis Moraga-Gonzalez & Matthijs R. Wildenbeest, 2011. "Comparison Sites," Working Papers 2011-04, Indiana University, Kelley School of Business, Department of Business Economics and Public Policy.
    6. Sjur Didrik Flåm, 2013. "Reaching Market Equilibrium Merely by Bilateral Barters," CESifo Working Paper Series 4504, CESifo.
    7. Victor M. Bennett & Robert Seamans & Feng Zhu, 2015. "Cannibalization and option value effects of secondary markets: Evidence from the US concert industry," Strategic Management Journal, Wiley Blackwell, vol. 36(11), pages 1599-1614, November.
    8. Joshua Sherman & Avi Weiss, 2017. "On Fruitful And Futile Tests Of The Relationship Between Search And Price Dispersion," Economic Inquiry, Western Economic Association International, vol. 55(4), pages 1898-1918, October.
    9. Bo Zhou & Tianxin Zou, 2023. "Competing for Recommendations: The Strategic Impact of Personalized Product Recommendations in Online Marketplaces," Marketing Science, INFORMS, vol. 42(2), pages 360-376, March.
    10. Fei Long & Kinshuk Jerath & Miklos Sarvary, 2022. "Designing an Online Retail Marketplace: Leveraging Information from Sponsored Advertising," Marketing Science, INFORMS, vol. 41(1), pages 115-138, January.
    11. Ramon Casadesus‐Masanell & Neil Campbell, 2019. "Platform competition: Betfair and the UK market for sports betting," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 28(1), pages 29-40, January.
    12. Michael D. Noel & Hongjie Qiang, 2023. "Missing Price Information and Its Impact on Equilibrium Price Dispersion: Evidence From Gasoline Signboards," Journal of Industrial Economics, Wiley Blackwell, vol. 71(3), pages 814-854, September.
    13. Mansell, Robin, 2001. "Digital opportunities and the missing link for developing countries," LSE Research Online Documents on Economics 19033, London School of Economics and Political Science, LSE Library.
    14. Liang Guo, 2022. "Strategic Communication Before Price Haggling: A Tale of Two Orientations," Marketing Science, INFORMS, vol. 41(5), pages 922-940, September.
    15. Cynthia Doniger, 2023. "Wage Dispersion with Heterogeneous Wage Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 138-160, December.
    16. Wei Zhou & Zidong Wang, 2020. "Competing for Search Traffic in Query Markets: Entry Strategy, Platform Design, and Entrepreneurship," Working Papers 20-12, NET Institute.
    17. L. Moreno-Izquierdo & A.B. Ramón-Rodríguez & J.F. Perles-Ribes, 2016. "Pricing Strategies of the European Low-Cost Carriers Explained Using Porter's Five Forces Model," Tourism Economics, , vol. 22(2), pages 293-310, April.
    18. Sagren Moodley, 2002. "Competing in the Digital Economy?: The Dynamics and Impacts of B2B E-commerce on the South African Manufacturing Sector," WIDER Working Paper Series DP2002-79, World Institute for Development Economic Research (UNU-WIDER).
    19. Susanna Wolf & Shyamal Chowdhury, 2003. "Use of ICTs and the Economic Performance of SMEs in East Africa," WIDER Working Paper Series DP2003-06, World Institute for Development Economic Research (UNU-WIDER).
    20. Raluca M. Ursu, 2018. "The Power of Rankings: Quantifying the Effect of Rankings on Online Consumer Search and Purchase Decisions," Marketing Science, INFORMS, vol. 37(4), pages 530-552, August.

    More about this item

    Keywords

    Nash bargaining; search cost; sequential search; social welfare;
    All these keywords.

    JEL classification:

    • D40 - Microeconomics - - Market Structure, Pricing, and Design - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:bejtec:v:18:y:2018:i:1:p:7:n:4. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.