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Consumer Search Costs and Market Performance

Author

Listed:
  • 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.

Suggested Citation

  • David, Douglas D & Holt, Charles A, 1996. "Consumer Search Costs and Market Performance," Economic Inquiry, Western Economic Association International, vol. 34(1), pages 133-151, January.
  • Handle: RePEc:oup:ecinqu:v:34:y:1996:i:1:p:133-51
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    Citations

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    Cited by:

    1. Dmitry Ryvkin & Danila Serra, 2015. "Is more competition always better? An experimental study of extortionary corruption," Working Papers wp2015_10_01, Department of Economics, Florida State University.
    2. Bayer, Ralph-C. & Ke, Changxia, 2013. "Discounts and consumer search behavior: The role of framing," Journal of Economic Psychology, Elsevier, vol. 39(C), pages 215-224.
    3. 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.
    4. Dmitry Ryvkin & Danila Serra, 2016. "The Industrial Organization of Corruption: Monopoly, Competition and Collusion," Working Papers wp2016_10_01, Department of Economics, Florida State University.
    5. 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.
    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. Cristina Mazón & Pedro Pereira, 2001. "Electronic commerce, consumer search and reailing cost reduction," Documentos de Trabajo del ICAE 0102, Universidad Complutense de Madrid, Facultad de Ciencias Económicas y Empresariales, Instituto Complutense de Análisis Económico.
    8. Maarten C. W. Janssen & José Luis Moraga-González & Matthijs R. Wildenbeest, 2004. "Consumer Search and Oligopolistic Pricing: An Empirical Investigation," CESifo Working Paper Series 1292, CESifo Group Munich.
    9. 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.
    10. repec:eee:joreco:v:35:y:2017:i:c:p:36-45 is not listed on IDEAS
    11. Alexander Raskovich, 2006. "Ordered Bargaining," EAG Discussions Papers 200610, Department of Justice, Antitrust Division.
    12. 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, May.
    13. Andrew Kloosterman, 2016. "Directed search with heterogeneous firms: an experimental study," Experimental Economics, Springer;Economic Science Association, vol. 19(1), pages 51-66, March.
    14. Huailu Li & Kevin Lang & Kaiwen Leong, "undated". "Does Competition Eliminate Discrimination? Evidence from the Commercial Sex Market in Singapore," Boston University - Department of Economics - The Institute for Economic Development Working Papers Series dp-275, Boston University - Department of Economics.
    15. Raskovich, Alexander, 2007. "Ordered bargaining," International Journal of Industrial Organization, Elsevier, vol. 25(5), pages 1126-1143, October.
    16. Kathy Baylis & Jeffrey Perloff, 2002. "Price Dispersion on the Internet: Good Firms and Bad Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 21(3), pages 305-324, November.
    17. 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.
    18. 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.
    19. 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.
    20. Möllers, Claudia & Stühmeier, Torben & Wenzel, Tobias, 2016. "Search costs in concentrated markets: An experimental analysis," DICE Discussion Papers 233, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    21. repec:smu:ecowpa:1301 is not listed on IDEAS
    22. repec:eee:eecrev:v:94:y:2017:i:c:p:1-22 is not listed on IDEAS

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