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Estimating the Lock-in Effects of Switching Costs from Firm-Level Data

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  • Gabor Kezdi

    ()
    (Institute of Economics Hungarian Academy of Sciences)

  • Gergely Csorba

    ()
    (Institute of Economics Hungarian Academy of Sciences)

Abstract

This 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 Info

Paper provided by Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences in its series IEHAS Discussion Papers with number 1108.

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Length: 43 pages
Date of creation: Feb 2011
Date of revision:
Handle: RePEc:has:discpr:1108

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Keywords: switching costs; lock-in; panel data;

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References

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  1. Maicas, Juan Pablo & Polo, Yolanda & Javier Sese, F., 2009. "Reducing the level of switching costs in mobile communications: The case of Mobile Number Portability," Telecommunications Policy, Elsevier, Elsevier, vol. 33(9), pages 544-554, October.
  2. Lukasz Grzybowski, 2008. "Estimating Switching Costs in Mobile Telephony in the UK," Journal of Industry, Competition and Trade, Springer, Springer, vol. 8(2), pages 113-132, June.
  3. Matthew Shum, 2004. "Does Advertising Overcome Brand Loyalty? Evidence from the Breakfast-Cereals Market," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 13(2), pages 241-272, 06.
  4. Pasquale Schiraldi, 2011. "Automobile replacement: a dynamic structural approach," RAND Journal of Economics, RAND Corporation, vol. 42(2), pages 266-291, 06.
  5. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers, C.E.P.R. Discussion Papers 436, C.E.P.R. Discussion Papers.
  6. Kim, Moshe & Kliger, Doron & Vale, Bent, 2003. "Estimating switching costs: the case of banking," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 12(1), pages 25-56, January.
  7. Avi Goldfarb, 2006. "State Dependence at Internet Portals," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 15(2), pages 317-352, 06.
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Cited by:
  1. Zsombor Z. Méder & András Simonovits & János Vincze, 2012. "Tax Morale and Tax Evasion: Social Preferences and Bounded Rationality," Working Papers, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest 1202, Department of Mathematical Economics and Economic Analysis, Corvinus University of Budapest.
  2. Judit Karsai, 2012. "Development of the Hungarian Venture Capital and Private Equity Industry over the Past Two Decades," IEHAS Discussion Papers, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences 1201, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.

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