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Customer Poaching and Brand Switching

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  • Drew Fudenberg
  • Jean Tirole

Abstract

Firms 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 Info

Article provided by The RAND Corporation in its journal RAND Journal of Economics.

Volume (Year): 31 (2000)
Issue (Month): 4 (Winter)
Pages: 634-657

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Handle: RePEc:rje:randje:v:31:y:2000:i:winter:p:634-657

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