Customer Poaching and Brand Switching
AbstractFirms sometimes try to "poach" the customers of their competitors by offering them inducements to switch. We analyze duopoly poaching under both short-term and long-term contracts assuming either that each consumer's brand preferences are fixed over time or that preferences are independent over time. With fixed preferences, short-term contracts lead to poaching and socially inefficient switching. The equilibrium with long-term contracts has less switching than when only short-term contracts are feasible, and it involves the sale of both short-term and long-term contracts. With independent preferences, short-term contracts are efficient, but long-term contracts lead to inefficiently little switching.
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Bibliographic InfoArticle provided by The RAND Corporation in its journal RAND Journal of Economics.
Volume (Year): 31 (2000)
Issue (Month): 4 (Winter)
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Web page: http://www.rje.org
Other versions of this item:
- Drew Fudenberg & Jean Tirole, 1999. "Customer Poaching and Brand Switching," Harvard Institute of Economic Research Working Papers 1871, Harvard - Institute of Economic Research.
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