Dynamic Competition with Switching Costs
AbstractWe analyze an overlapping-generations model of duopolistic competition in the presence of consumer switching costs. Competition for established buyers is continually intermingled with competition for new, uncommitted buyers. In equilibrium the firm with attached customers typically specializes in serving them and concedes new buyers to its rival. This pattern of repeated entry persists even when there are economies of scale or network externalities. Switching costs thus can cause inefficiency in a surprising way: far from forming an entry barrier, they encourage entry to serve new customers, even when such entry is inefficient.
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Bibliographic InfoPaper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt1h02g9q4.
Date of creation: 11 Jan 1988
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switching costs; dynamic competition; lock-in; long-term relationships; overlapping generations; Social and Behavioral Sciences;
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- Why learning economics is of no use, or how Flexstrom managed to fleece me
by Alexia Gaudeul in Alexia Gaudeul's Blog on 2012-04-12 12:00:00
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