Market Frictions: A Uni\u85ed Model of Search and Switching Costs

Abstract. Despite the existence of two vast literatures, very little is known about the potential di¤erences or interactions between search and switch-ing costs. This paper demonstrates the bene\u85ts of examining the two frictions in unison. First, the paper shows how subtle distinctions between the two costs can provide important di¤erences in their e¤ects upon consumer behaviour and market prices. In many cases, policymakers may prefer to reduce search costs rather than switching costs. Second, the paper illustrates a simple methodology for estimating the magnitude of both costs while demonstrating the potential bias that can arise from a single-cost approach. 1