Search and Bidding Costs

Chun-Hui Miao 1
  • 1 Department of Economics, University of South Carolina, 1014 Greene St., Columbia, USA
Chun-Hui Miao
  • Corresponding author
  • Department of Economics, University of South Carolina, 1014 Greene St., Columbia, SC 29208, USA
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Abstract

This paper studies consumer search behavior in markets where sellers must incur fixed costs to win a contract. We show that consumers face a commitment problem if their search intensities are not observed by sellers. Welfare is maximized when consumers can precommit to a limited number of searches, but in the absence of the ability to commit, consumers search more than the optimum. A decline in search costs can exacerbate the commitment problem and leave consumers potentially worse off.

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The B.E. Journal of Economic Analysis & Policy (BEJEAP) is an international forum for scholarship that employs microeconomics to analyze issues in business, consumer behavior and public policy. Topics include the interaction of firms, the functioning of markets, the effects of domestic and international policy and the design of organizations and institutions.

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