Price Wars Caused by Switching Costs
AbstractIn many markets, consumers have "switching costs" (for example, learning costs or transaction costs) of changing between functionally-equivalent brands of a product, or of using any brand for the first time. The author analyzes a four-period, complete-information model of a market with switching costs in which new entry occurs after the second period. The new entry results, in equilibrium, in a price war. That is, the new entrants' prices are higher in the postentry period than in the entry period, and the incumbent's price falls in either the preentry period or in the entry period and subsequently rises. The author interprets the incumbent's lowering its price in the preentry period as limit-pricing behavior. He distinguishes between two types of price war that can occur, and shows how the type, or mixture of types, that arises depends on the size of switching costs. Copyright 1989 by The Review of Economic Studies Limited.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Wiley Blackwell in its journal Review of Economic Studies.
Volume (Year): 56 (1989)
Issue (Month): 3 (July)
Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0034-6527
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Luis Cabral, 2014. "We're Number 1: Price Wars for Market Share Leadership," Working Papers 14-01, New York University, Leonard N. Stern School of Business, Department of Economics.
- Elder, Erick & To, Ted, 1999.
"Consumer switching costs and private information,"
Elsevier, vol. 63(3), pages 369-375, June.
- Elzinga, Kenneth G. & Mills, David E., 1999. "Price wars triggered by entry," International Journal of Industrial Organization, Elsevier, vol. 17(2), pages 179-198, February.
- Pot Erik & Flesch János & Peeters Ronald & Vermeulen Dries, 2009.
"Dynamic Competition with Consumer Inertia,"
037, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
- Morita, Hodaka & Waldman, Michael, 2006.
"Competition, Monopoly Maintenance, and Consumer Switching Costs,"
1426, University Library of Munich, Germany.
- Hodaka Morita & Michael Waldman, 2010. "Competition, Monopoly Maintenance, and Consumer Switching Costs," American Economic Journal: Microeconomics, American Economic Association, vol. 2(1), pages 230-55, February.
- A. Jorge Padilla, 1991. "Consumer switching costs: a survey," Investigaciones Economicas, Fundación SEPI, vol. 15(3), pages 485-504, September.
- Toker Doganoglu, 2010. "Switching costs, experience goods and dynamic price competition," Quantitative Marketing and Economics, Springer, vol. 8(2), pages 167-205, June.
- Zhang, Yahua & Round, David K., 2011. "Price wars and price collusion in China's airline markets," International Journal of Industrial Organization, Elsevier, vol. 29(4), pages 361-372, July.
- Eric Anderson & Nanda Kumar, 2007. "Price competition with repeat, loyal buyers," Quantitative Marketing and Economics, Springer, vol. 5(4), pages 333-359, December.
- Alessandro Acquisti & Hal R. Varian, 2005.
"Conditioning Prices on Purchase History,"
INFORMS, vol. 24(3), pages 367-381, May.
- Villanueva, Julian & Bhardwaj, Pradeep & Chen, Yuxin & Balasubramanian, Sridhar, 2004. "Managing customer relationships: Should managers really focus on the long term?," IESE Research Papers D/560, IESE Business School.
- Béthuel Makosso, 2005. "Analyse du processus concurrentiel dans les services des télécommunications au Congo : l'incidence des externalités de réseau et de la réglementation sur la dynamique du secteur de la téléphoni," Innovations, De Boeck Université, vol. 21(1), pages 217-242.
- Nicoletta Corrocher & Lorenzo Zirulia, 2010. "Switching costs, consumer heterogeneity and price discrimination," Journal of Economics, Springer, vol. 101(2), pages 149-167, October.
- Ali Hortacsu & Chad Syverson, 2003. "Product Differentiation, Search Costs, and Competition in the Mutual Fund Industry: A Case Study of the S&P 500 Index Funds," NBER Working Papers 9728, National Bureau of Economic Research, Inc.
- Nicoletta Corrocher & Lorenzo Zirulia, 2005. "Switching Costs, Consumers' Heterogeneity and Price Discrimination in the Mobile Communications Industry," KITeS Working Papers 166, KITeS, Centre for Knowledge, Internationalization and Technology Studies, Universita' Bocconi, Milano, Italy, revised May 2005.
- Dennis W. Carlton & Michael Waldman, 2001.
"Competition, Monopoly, and Aftermarkets,"
NBER Working Papers
8086, National Bureau of Economic Research, Inc.
- Robin Mason & Timothy Swanson, . "Entry Deterrence and Environmental Regulation," Economics Papers 1997-W9, Economics Group, Nuffield College, University of Oxford.
- Loreto Lira & Rosario Rivero & Rodrigo Vergara, 2007. "Entry and Prices: Evidence from the Supermarket Sector," Review of Industrial Organization, Springer, vol. 31(4), pages 237-260, December.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.