Estimating the Lock-in Effects of Switching Costs from Firm-Level Data
AbstractThis paper proposes a simple method for estimating the lock-in effects of switching costs from firm-level data. We compare the behavior of already contracted consumers to the behavior of new consumers as the latter can serve as contrafactual to the former. In panel regressions on firms' incoming and quitting consumers, we look at the differential response to price changes and identify the lock-in effect of switching costs from the difference between the two. We illustrate our method by analyzing the Hungarian personal loan market and find strong lock-in effects.
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Bibliographic InfoPaper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1108.
Length: 43 pages
Date of creation: Feb 2011
Date of revision:
switching costs; lock-in; panel data;
Find related papers by JEL classification:
- C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
- D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-03-26 (All new papers)
- NEP-BEC-2011-03-26 (Business Economics)
- NEP-COM-2011-03-26 (Industrial Competition)
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