Market Frictions: A Unified Model of Search and Switching Costs

  title={Market Frictions: A Unified Model of Search and Switching Costs},
  author={Chris M. Wilson},
  journal={Microeconomics: Welfare Economics \& Collective Decision-Making eJournal},
  • Chris M. Wilson
  • Published 1 February 2009
  • Economics
  • Microeconomics: Welfare Economics & Collective Decision-Making eJournal
Despite the existence of two vast literatures, very little is known about the potential differences or interactions between search and switching costs. This paper demonstrates the benefits of examining the two frictions in unison. First, the paper shows how subtle distinctions between the two costs can provide important differences in their effects upon consumer behaviour and market prices. In many cases, policymakers may prefer to reduce search costs rather than switching costs. Second, the… 
Estimation of Search Frictions in the British Electricity Market
This paper studies consumer search and pricing behavior in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an
Information matters: A theoretical comparison of some cross-border trade barriers
Can a Decline in Search Cost Increase Prices?
This paper provides a new explanation of why a decline in consumers price search cost may not lead to lower prices. In a duopoly with price competition, I show that when some consumers are captive to
Quantifying Search and Switching Costs in the U.S. Auto Insurance Industry
type="main"> I estimate demand for auto insurance in the presence of two types of market frictions: search and switching costs. I develop an integrated utility-maximizing model in which consumers
Information Matters: Comparing Some Theoretical Determinants of Border Effects in Trade
There is widespread evidence that geographical borders reduce trade volumes. This paper presents a theoretical model capable of providing a succinct comparison of three broad explanations for this
Essays in industrial organisation
This thesis presents four largely independent essays on industrial organisation. The first three essays examine how search and switching costs distort competitive markets, whilst the fourth essay
An Empirical Study of the Effect of the Internet on Fares in the U.S. Airline Industry.
A reduction in search costs is generally believed to make markets more competitive. However, the effect may be mitigated or amplified if consumers must pay costs for switching products. This paper
Essays on the Microfoundations of Competition and Choice in Public Service Delivery
markdownabstract__Abstract__ The way how public services are delivered has changed fundamentally in past decades. While in the 1970s most public services such as energy, water or telecommunications
Choice and Equality: Are Vulnerable Citizens Worse-Off after Liberalization Reforms?
In recent decades, we have witnessed a massive restructuring of public service delivery mechanisms, including service liberalization reforms, the pursuit of the choice agenda, and the creation of


Estimation of Search Frictions in the British Electricity Market
This paper studies consumer search and pricing behavior in the British domestic electricity market following its opening to competition in 1999. We develop a sequential search model in which an
Do Switching Costs Make Markets Less Competitive?
The conventional wisdom in economic theory holds that switching costs make markets less competitive. This article challenges this claim. The authors formulate an empirically realistic model of
Interstate Long Distance Rates: Search Costs, Switching Costs, and Market Power
A number of authors have argued that the divestiture of AT & T did not reduce the rates of long distance telephone companies as often believed. However, the literature has offered few explanations as
Switching costs, experience goods and dynamic price competition
I analyze a dynamic duopoly with an infinite horizon where consumers are uncertain about their potential satisfaction from the products and face switching costs. I derive sufficient conditions for
Information, Search, and Price Dispersion
We provide a unified treatment of alternative models of information acquisition/transmission that have been advanced to rationalize price dispersion in online and offline markets for homogeneous
Prominence and Consumer Search
This paper examines the implications of "prominence" in search markets. We model prominence by supposing that the prominent firm will be sampled first by all consumers. If there are no systematic
Pricing, product diversity, and search costs: a Bertrand-Chamberlin-Diamond model
We study price competition in the presence of search costs and product differentiation. The limit cases of the model are the ‘‘Bertrand Paradox,’’ the ‘‘Diamond Paradox,’’ and Chamberlinian
Competition when Consumers have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade
We survey recent work on competition in markets in which consumers have costs of switching between competing firms' products. In a market with switching costs (or "brand loyalty"), a firm's current
Estimating switching costs: the case of banking