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Market frictions: A unified model of search and switching costs

Wilson, Chris M (2009): Market frictions: A unified model of search and switching costs.

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Abstract

It is well known that search costs and switching costs can create market power by constraining the ability of consumers to change suppliers. While previous research has examined each cost in isolation, this paper demonstrates the benefits of examining the two types of friction in unison. The paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour, competition and welfare. In addition, the paper also illustrates a simple empirical methodology for estimating measures of both costs while demonstrating the potential bias that can arise in approaches that consider only one cost.

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