Abstract

http://ssrn.com/abstract=1752066
 
 

References (25)



 


 



Search Costs and Risky Investment in Quality


Nadav Levy


Interdisciplinary Center (IDC) Herzliya

Arthur Fishman


Bar-Ilan University - Department of Economics

January 1, 2012


Abstract:     
One striking development associated with the explosion of e-commerce is the increased transparency of sellers' quality. In this paper we analyze how this affects firms' incentives to invest in quality when the outcome of investment is uncertain. We identify two conflicting effects. On the one hand, reducing the consumer's cost of search for quality exacerbates the negative effects of delivering poor quality. On the other hand, the fact that a firm, despite its best efforts, may fail to live up to consumers' more demanding expectations, makes investment less attractive. We show that reducing the search cost leads to higher quality if the initial level of the search cost is sufficiently high but may lead to lower quality if the initial level of the search cost is sufficiently low.

Number of Pages in PDF File: 25

Keywords: search, internet search, quality, investment in quality

JEL Classification: D83, L15

working papers series


Download This Paper

Date posted: January 31, 2011 ; Last revised: July 29, 2013

Suggested Citation

Levy, Nadav and Fishman, Arthur, Search Costs and Risky Investment in Quality (January 1, 2012). Available at SSRN: http://ssrn.com/abstract=1752066 or http://dx.doi.org/10.2139/ssrn.1752066

Contact Information

Nadav Levy (Contact Author)
Interdisciplinary Center (IDC) Herzliya ( email )
P.O. Box 167
Herzliya, 46150
Israel
Arthur Fishman
Bar-Ilan University - Department of Economics ( email )
Ramat-Gan, 52900
Israel
972-3-531-8366 (Phone)
972 3 535 3180 (Fax)

Feedback to SSRN


Paper statistics
Abstract Views: 365
Downloads: 47
References:  25

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo5 in 0.250 seconds