Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

All other things being equal, the lower the incremental cost of searching, the more searching will take place. Therefore some say that the Internet will

All other things being equal, the lower the incremental cost of searching, the more searching will take place. Therefore some say that the Internet will expand greatly the amount of searching effort (money and time expended) by buyers. Others disagree and argue that the Internet enables people to expend less effort on search. Which reaction is consistent with Stigler's model?

a) The expansion of effort position; specialized sites and search engines make it possible to compare many more goods and options in one search than ever before at a fraction of physical search or shopping costs. Given the low incremental costs of search, more will be undertaken.

b) The reduction of money and time expended position; the Internet makes the expected return on an initial search much greater (more efficient) than physical search but incremental returns to successive searches may become very small quickly. The actual amount of search effort may well decline because the point at which expected returns equals incremental search cost might occur very early.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Econometric Analysis

Authors: William H. Greene

5th Edition

130661899, 978-0130661890

More Books

Students also viewed these Economics questions