Consulting Case Interview Practice Questions

Answer: True. The economic explanation of search costs is that buyers of goods will search for a better deal until the cost of searching exceeds the cost of expected benefit. For instance, before the Internet, you’d have to get in your car and drive a certain number of miles to each store to compare prices. Your time, gas and mileage on the car are all search costs. In those cases, it often wasn’t worth it, and you might pay a few dollars more to avoid store hopping. Now you can check many stores at a time from your computer, and the search costs are just a few seconds of your time.

Key Takeaway: It is important to understand how the Internet affected the structure of the retail industry. Reduced search costs are central to that paradigm.