Abstract
This paper studies consumer search behavior in markets where sellers must incur fixed costs to win a contract. We show that consumers face a commitment problem if their search intensities are not observed by sellers. Welfare is maximized when consumers can precommit to a limited number of searches, but in the absence of the ability to commit, consumers search more than the optimum. A decline in search costs can exacerbate the commitment problem and leave consumers potentially worse off.
Acknowledgements
This paper was previously circulated under the title “Excessive Search”. I am grateful to seminar participants at the 2018 Midwest Theory Conference, USC – Columbia, and especially an anonymous referee for helpful comments and suggestions. All remaining errors are mine.
A Proof
Proof of Lemma 2.
Using the results from Lemma 1, we obtain that
where
Proof of Lemma 3.
By (3),
Proof of Proposition 1.
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