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Switch on the competition; causes, consequences and policy implications of consumer switching costs

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  • Marc Pomp
  • Victoria Shestalova

    ()

  • Luiz Rangel

Abstract

The 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 Info

Paper provided by CPB Netherlands Bureau for Economic Policy Analysis in its series CPB Document with number 97.

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Date of creation: Sep 2005
Date of revision:
Handle: RePEc:cpb:docmnt:97

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Cited by:
  1. 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.
  2. 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.
  3. 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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