Munich Personal RePEc Archive

The Costly Quest for a Better Price - A Model of Search and Information Costs

Miao, Chun-Hui (2017): The Costly Quest for a Better Price - A Model of Search and Information Costs.

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Abstract

In many markets, consumers obtain price quotes before making purchases. This paper considers a fixed-sample size model of consumer search for price quotes when sellers must spend resources to learn the true cost of providing goods/services. It is found that (1) even with ex ante identical consumers and sellers, there is price dispersion in the equilibrium; (2) the expected equilibrium price can decrease with the search cost of consumers; (3) consumers may engage in excessive search that is detrimental to their own welfare; (4) a decline in the search cost can leave consumers worse off, due to their lack of commitment.

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