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How Increasing Supplier Search Cost Can Increase Welfare

Zhiwen Li (), Michael Arnold () and Thierry Pénard ()
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Zhiwen Li: School of management Jiangsu University - JiangSu University

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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)
Date: 2017-12-20
Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-01806502
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Published in B.E. Journal in Theoretical Economics, Topics in Theoretical Economics, De Gruyter, 2017, 18 (1), 〈10.1515/bejte-2016-0048〉

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01806502

DOI: 10.1515/bejte-2016-0048

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