Search Costs and Context Effects

Karle, Heiko; Kerzenmacher, Florian; Schumacher, Heiner; Verboven, Frank

doi:10.1257/mic.20240115

Abstract

Empirical search cost estimates are often large and increasing in the size of the transaction. We conduct an online search experiment in which we manipulate the price scale while keeping the physical search effort per price quote constant. Additionally, we obtain a direct measure of subjects’ opportunity costs of time. Using a standard search model, we confirm that search cost estimates are large and increasing in the price scale. We then modify the model to incorporate context effects with respect to prices. This results in search cost estimates that are scale-independent and correspond well to subjects’ opportunity costs of time.

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Search Costs and Context Effects

Abstract

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