Search cost

Internal costs include the mental effort given over to undertaking the search, sorting the incoming information, and integrating it with what the consumer already knows.

Internal costs are determined by the consumer's ability to undertake the search, and this in turn depends on intelligence, prior knowledge, education and training.

[2] Nonsequential search When consumers commit to purchasing from the lowest-cost store retailer after acquiring a random sample of l (> 1) costs.

[24] There is a choice value tied to looking again at any price, and the optimum search problem is related to the "optimal stopping" issue.

Peter A. Diamond's Model of Price Adjustment illustrates that small search frictions have an important role in market structure,[4] and a firm's capacity to deviate from Bertrand Competition.

The underlying premise of this signal-jamming method is simple: if the time cost of the search is originally unknown, customers know about pricing from their initial purchasing encounters, therefore obfuscation boosts consumer expectations about future search costs.

[6][7][8][9][10] Before the sanctions were imposed, the United States was receiving on average two thirds of its oil from OAPEC countries.

[6][7][8][9][10] Motorists and business owners started having to spend more and more time looking for service stations with fuel in stock.

Once a station was found motorists then had to wait in queues, sometimes as long as five miles, in order to fill up.

[11] Motorists comparing fuel prices at different service stations at a given point in time is an example of cross-sectional search behaviour.

[11][12] Job seeking activities such as finding vacant positions, gathering information about a firm, preparing a résumé and cover letter, preparing for an interview, and travelling to and from the job interview are examples of activities that incur a search cost from the individual.

[13][14] To maintain saving in excess of this minimum threshold value, the worker participates in temporary employment while conducting their search.

[14] With increased technological integration of the advertisement and management of job opportunities as well as worker information and the provision of accessible and affordable public transport these effects can be treated.

[13][14] With the rise in popularity and sophistication of computers and other electronic devices, the Internet was expected to eliminate search costs.

[15] For example, electronic commerce was predicted to cause disintermediation as search costs become low enough for end-consumers to incur them directly instead of employing retailers to do this for them.

The small screen size on a mobile phone can increase the cost of browsing information.

The competitive price taking equilibrium is a result of fully informed buyers as described within the classical market model.

This suggests that the cognitive effort it takes to process information, and thus the search costs, are much higher when users access the internet through their mobile phones.

[19] These differences are mainly due to the smaller screen sizes in mobile phones and their ability to overcome the geographic and time sensitivity limitations of PC computers.

[19] Price obfuscation is a strategy online retailers are implementing to derive further profits within electronic marketplaces and position themselves to regain market power.

[20] Strategies include the development of products requiring additional purchases, or add-ons, which have large unadvertised mark ups.

The use of a loss-leader approach is also implemented by online vendors to establish additional profits through the use of purposeful websites and advertisements designed to lure consumers into purchasing cheaper inferior goods and then to upgrade and purchase superior goods for higher prices.

[20] Customers are negatively affected by obfuscation because of the price increases and direct costs it imposes on them.

[21] Although obfuscation is beneficial to firms, excessive obstruction of pricing information can lead to the collapse of a market.

[21] Since none of the consumers can compare prices, they still behave as if future search costs will be higher and thus the transparent company benefits.

[21] Consumers suffer from obfuscation in two distinct manners: they spend more money on searches and end up paying more.

Obfuscation, for instance, makes adjustments in equilibrium to counteract variations in the exogenous aspect of customer search costs.