Startup Search Costs
31 Pages Posted: 18 Jan 2018 Last revised: 30 Oct 2018
Date Written: October 30, 2018
Workhorse economic models used for studying the market impacts of search frictions assume constant search costs: individuals pay the same cost to obtain price information each time they search. This paper provides evidence on a new form of search costs: startup costs. Exploiting a natural experiment in retail gasoline, we document how a temporary, large exogenous shock to consumers' search incentives leads to a substantial, permanent increase in price search. A standard search model fails to explain such history-dependence in search, while it follows directly from a model with a one-time up-front cost to start searching.
Keywords: Search, Price Dispersion, Price War, Retail Gasoline
JEL Classification: D83, L81
Suggested Citation: Suggested Citation