Seminar_Jose Luis Moraga-Gonzales.
Titel: Maximum Likelihood Estimation of Search Costs.
Abstract: In a recent paper Hong and Shum (2006) present a structural
methodology to estimate search cost distributions. We extend their
approach to the case of oligopoly and present a new method to estimate
search costs by maximum likelihood. We apply our method to a data set of
online prices for different computer memory chips. The estimates suggest
that on-line consumers have either quite high or quite low search costs
so they either search exhaustively in the market or very little, for at
most three prices. Search frictions confer a significant amount of
market power to the firms: despite that more than 20 firms operate in
each of the markets we study, price-cost margins are around 25\%.
Kolmogorov-Smirnov goodness-of-fit tests suggest we cannot reject the
null hypothesis that the observed prices are generated by the model. The
paper also illustrates how the structural methodology can be employed to
simulate the effects of policy interventions.