Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

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Wednesday, March 4, 2009

Market Frictions: A Unified Model of Search and Switching Costs

Posted by D. Daniel Sokol

Chris Wilson, Department of Economics, Loughborough University, presents Market Frictions: A Unified Model of Search and Switching Costs.

ABSTRACT: Despite the existence of two vast literatures, very little is known about the potential di¤erences or interactions between search and switch- ing costs. This paper demonstrates the bene…ts of examining the two frictions in unison. First, the paper shows how subtle distinctions between the two costs can provide important di¤erences in their e¤ects upon consumer behaviour and market prices. In many cases, policy makers may prefer to reduce search costs rather than switching costs. Second, the paper illustrates a simple methodology for estimating the magnitude of both costs while demonstrating the potential bias that can arise from a single-cost approach.

http://lawprofessors.typepad.com/antitrustprof_blog/2009/03/market-friction.html

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