Switch on the competition; causes, consequences and policy implications of consumer switching costs
AbstractThe success or failure of reforms aimed at liberalising markets depends to an important degree on consumer behaviour. If consumers do not base their choices on differences in prices and quality, competition between firms may be weak and the benefits of liberalisation to consumers may be small. One possible reason why consumers may respond only weakly to differences in price and quality is high costs of switching to another firm. This report presents a framework for analysing markets with switching costs and applies the framework in two empirical case studies. The first case study analyses the residential energy market, the second focuses on the market for social health insurance. In both markets, there are indications that switching costs are substantial. The report discusses policy options for reducing switching costs and for alleviating the consequences of switching costs.
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Bibliographic InfoPaper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 97.
Date of creation: Sep 2005
Date of revision:
Find related papers by JEL classification:
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-COM-2006-02-12 (Industrial Competition)
- NEP-CSE-2006-02-12 (Economics of Strategic Management)
- NEP-DCM-2006-02-12 (Discrete Choice Models)
- NEP-ENE-2006-02-12 (Energy Economics)
- NEP-IAS-2006-02-12 (Insurance Economics)
- NEP-MIC-2006-02-12 (Microeconomics)
- NEP-MKT-2006-02-12 (Marketing)
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- Marc Pomp & Victoria Shestalova, 2007. "Switching Costs in Netherlands Energy Markets: Can Liberalisation Bring Benefits to Small Customers?," De Economist, Springer, vol. 155(3), pages 305-321, September.
- Michiel Bijlsma & Paul de Bijl & Viktoria Kocsis, 2009. "Concurrentie, innovatie en intellectuele eigendomsrechten in software markten," CPB Document 181, CPB Netherlands Bureau for Economic Policy Analysis.
- Alderighi, Marco, 2007. "The role of buying consortia among SMEs in the electricity market in Italy," Energy Policy, Elsevier, vol. 35(6), pages 3463-3472, June.
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