Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86390
Authors: 
Moraga-Gonzalez, Jose Luis
Wildenbeest, Matthijs R.
Year of Publication: 
2006
Series/Report no.: 
Tinbergen Institute Discussion Paper 06-019/1
Abstract: 
In a recent paper Hong and Shum [2006. Using price distributions to estimate search costs. Rand Journal of Economics 37, 257–275] present a structural method to estimate search cost distributions. We extend their approach to the case of oligopoly and present a new maximum likelihood method to estimate search costs. We apply our method to a data set of online prices for different computer memory chips. The estimates suggest that the consumer population can be roughly split into two groups which either have quite high or quite low search costs. Search frictions confer a significant amount of market power to the firms: Despite more than 20 firms operating in each of the markets, we estimate price-cost margins to be around 25%. The paper also illustrates how the structural method can be employed to simulate the effects of the introduction of a sales tax.
Subjects: 
consumer search
oligopoly
price dispersion
structural estimation
maximum likelihood
JEL: 
C14
D43
D83
L13
Document Type: 
Working Paper

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