Competing firms often have the possibility to jointly determine the magnitude of consumers’ switching costs. Examples include compatibility decisions and the option of introducing number portability in telecom and banking. We put forward a model where firms jointly decide to reduce switching costs before competing in prices during two periods. We demonstrate that the outcome hinges crucially on how the joint action reduces consumers’ switching costs. In particular, firms will enhance their market power if they implement measures that reduce consumers’ switching costs by a lump sum. Conversely, they will preserve market power by not implementing actions that reduce switching costs proportionally. Hence, when policy makers design consumer protection policies, they should not always adopt a favourable attitude towards efforts by firms to reduce switching costs.
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number
CESifo Working Paper No. 2449.
Find related papers by JEL classification: D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Stefan Buehler & Justus Haucap, 2003.
"Mobile Number Portability,"
Working Papers
0303, University of Zurich, Socioeconomic Institute, revised Jul 2003.
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