Sunday, November 27, 2005

Sticking It To Stigler

George Stigler wrote a piece on the economics of information sometime back inwhich he described reasons that determine the scale of cost of search (as in for the best price of a product). He listed several relevant factors: the number of buyers and sellers, the ratio of price of good to income and the geographical size of the market.

It annoys me, though, that he paid no attention to technological development as a factor, which can increase the size of the market but at the same time can increase the amount of search. Lo and behold while I was reviewing old micro final exams I stumble onto this sentence we're asked to comment on:

"According to the search model of George Stigler, the rise of the Internet should increase the amount of time that consumers spend searching for good prices."

The move is technically ambiguous because while sellers and buyers have increased (more search), the geographic area has also increased (less search). The second part isn't important, though, because the whole point of considering the geographic size is to include the cost of moving from place to place, which has actually decreased. But the author only talks about geographic change, not effective geographic change.

Seeing this question, I found myself shaking my fist at the paper loudly saying, "Damn you Stigler for not including technological change in your determining criteria for the cost and amount of search a consumer endures for the pursuit of the best price of a particular good or service."

I wonder how long I've been such a big economics dork?

1 comment:

Anonymous said...

"I wonder how long I've been such a big economics dork?"

Do you really want an answer?