How Increasing Supplier Search Cost Can Increase Welfare

摘要

Reductions in search costs are generally found to increase efficiency and welfare. Using a simple search modelrnwe show that when an upstream firm incurs a search cost to identify a potential trading partner and the twornparties then negotiate the wholesale price, a reduction in search cost can actually reduce welfare. Furthermore,rnin a market driven by seller search, a search cost of zero is never socially optimal.