How Increasing Supplier Search Cost Can Increase Welfare
Li Zhiwen (),
Michael Arnold () and
Thierry Pénard ()
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Li Zhiwen: School of Management, Jiangsu University, Zhenjiang, China
The B.E. Journal of Theoretical Economics, 2018, vol. 18, issue 1, 7
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.
Keywords: Nash bargaining; search cost; sequential search; social welfare (search for similar items in EconPapers)
JEL-codes: D40 D83 L10 (search for similar items in EconPapers)
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Working Paper: How Increasing Supplier Search Cost Can Increase Welfare (2017)
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