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Search, switching costs and the design of optimal competition policy (SASWCO)
Start date: Sep 1, 2007, End date: Aug 31, 2011 PROJECT  FINISHED 

In real-world markets consumers face search and switching costs. These costs have received significant theoretical consideration in separate literatures. The received wisdom is that search and switching costs have pervasive consequences in markets because they confer market power to the firms. As a result, prices are often dispersed and higher than what are desirable from a welfare standpoint. Despite a significant theoretical effort, search and switching costs are to a large extent ignored when it comes to competition policy and antitrust economics. There are at least three reasons for this omission. One, existing work has largely focused on specific market structures, namely markets with infinitely many firms (search cost literature) or duopolistic (switching cost literature) and therefore has failed to examine oligopolistic market structures (markets with a finite and arbitrary number of firms), far more reaching in real-world markets and central to antitrust economics. Two, the work on identification and quantification of search and switching costs is practically inexistent. Three, in many markets search and switching costs operate at a time and there is no prior work considering both search and switching costs together. This project at developing a series of demand and supply (market) models of the interaction of firms and consumers and corresponding econometrics methods to estimate search and switching costs. As such, the results of the project should be of interest to regulatory and antitrust authorities, in particular in the EU. The Team Leader, a proven high-potential researcher in the field of microeconomics, will form a research Team by combining skills from the fields of economics, mathematics/game theory and statistics/econometrics. The Department of Economics of the University of Groningen, as host organisation, will offer the research group a unique research environment, infrastructure and network to drive the research to scientific excellence.

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