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Start-up Search Costs†

Start-up Search Costs† AbstractWorkhorse economic models used for studying the market impacts of search frictions assume constant search costs: individuals pay the same cost to obtain price information each time they search. This paper provides evidence on a new form of search costs: start-up costs. Exploiting a natural experiment in retail gasoline, we document how a temporary, large exogenous shock to consumers’ search incentives leads to a substantial, permanent increase in price search. A standard search model fails to explain such history dependence in search, while it follows directly from a model with a one-time up-front cost to start searching. (JEL D83, L13, L81) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Start-up Search Costs†

Start-up Search Costs†

American Economic Journal: Microeconomics , Volume 14 (2) – May 1, 2022

Abstract

AbstractWorkhorse economic models used for studying the market impacts of search frictions assume constant search costs: individuals pay the same cost to obtain price information each time they search. This paper provides evidence on a new form of search costs: start-up costs. Exploiting a natural experiment in retail gasoline, we document how a temporary, large exogenous shock to consumers’ search incentives leads to a substantial, permanent increase in price search. A standard search model fails to explain such history dependence in search, while it follows directly from a model with a one-time up-front cost to start searching. (JEL D83, L13, L81)

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Publisher
American Economic Association
Copyright
Copyright © 2022 © American Economic Association
ISSN
1945-7685
DOI
10.1257/mic.20190279
Publisher site
See Article on Publisher Site

Abstract

AbstractWorkhorse economic models used for studying the market impacts of search frictions assume constant search costs: individuals pay the same cost to obtain price information each time they search. This paper provides evidence on a new form of search costs: start-up costs. Exploiting a natural experiment in retail gasoline, we document how a temporary, large exogenous shock to consumers’ search incentives leads to a substantial, permanent increase in price search. A standard search model fails to explain such history dependence in search, while it follows directly from a model with a one-time up-front cost to start searching. (JEL D83, L13, L81)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: May 1, 2022

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