Enhancing Market Power by Reducing Switching Costs
AbstractCompeting firms often have the possibility to jointly determine the magnitude of consumersâ 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 consumersâ switching costs. In particular, firms will enhance their market power if they implementmeasures that reduce consumersâ switching costs by a lump sum. Conversely, they willpreserve market power by not implementing actions that reduce switching costsproportionally. 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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Bibliographic InfoPaper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2008-91.
Date of creation: 2008
Date of revision:
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Other versions of this item:
- Bouckaert, Jan & Degryse, Hans & Provoost, Thomas, 2010. "Enhancing market power by reducing switching costs," Economics Letters, Elsevier, vol. 109(2), pages 131-133, November.
- BOUCKAERT, Jan & DEGRYSE, Hans & PROVOOST, Thomas, 2010. "Enchancing market power by reducing switching costs," Working Papers 2010008, University of Antwerp, Faculty of Applied Economics.
- Bouckaert, J.M.C. & Degryse, H.A. & Provoost, T., 2008. "Enhancing Market Power by Reducing Switching Costs," Discussion Paper 2008-038, Tilburg University, Tilburg Law and Economic Center.
- Jan Bouckaert & Hans Degryse & Thomas Provoost, 2008. "Enhancing Market Power by Reducing Switching Costs," CESifo Working Paper Series 2449, CESifo Group Munich.
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-01-31 (All new papers)
- NEP-BEC-2009-01-31 (Business Economics)
- NEP-COM-2009-01-31 (Industrial Competition)
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