Startup Search Costs
20 Pages Posted: 18 Jan 2018
Date Written: January 12, 2018
Search frictions determine the impacts of policies or technologies in many markets. Workhorse economic models used to study these impacts assume constant marginal search costs: individuals pay the same search cost to become informed about an additional price (sequential search models), or the entire price distribution (non-sequential search models). This paper provides evidence from a natural experiment in retail gasoline on a new form of search costs: startup costs. We empirically document how a temporary, large exogenous shock to consumers' search incentives leads to a permanent doubling of their search intensity for gasoline prices. This result is difficult to explain with a standard search model but follows directly in an otherwise standard search model with a one-time upfront cost to start searching.
Keywords: Search, Price Clearinghouse, Retail Gasoline
JEL Classification: D83, L81
Suggested Citation: Suggested Citation