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

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.

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)
Date: 2018
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DOI: 10.1515/bejte-2016-0048

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