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The value of switching costs

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  • Biglaiser, Gary
  • Crémer, Jacques
  • Dobos, Gergely

Abstract

We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We rst show that if all consumers have the same switching cost, then the intertemporal pro ts of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its pro ts increase as their presence hinders entrants who nd it more costly to attract high switching cost customers.

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File URL: http://idei.fr/doc/by/cremer_j/value_oct2012.pdf
File Function: Forthcoming in "Journal of Economic Theory"
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Bibliographic Info

Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 596.

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Date of creation: 03 Feb 2010
Date of revision: 30 Oct 2012
Handle: RePEc:ide:wpaper:22317

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  1. Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
  2. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-66, May.
  3. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  4. Farrell, Joseph & Klemperer, Paul, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Competition Policy Center, Working Paper Series qt9n26k7v1, Competition Policy Center, Institute for Business and Economic Research, UC Berkeley.
  5. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2010. "The value of switching costs," IDEI Working Papers 596, Institut d'Économie Industrielle (IDEI), Toulouse, revised 30 Oct 2012.
  6. Padilla A. Jorge, 1995. "Revisiting Dynamic Duopoly with Consumer Switching Costs," Journal of Economic Theory, Elsevier, vol. 67(2), pages 520-530, December.
  7. Jean-Pierre Dube & Guenter J. Hitsch & Peter Rossi, 2006. "Do Switching Costs Make Markets Less Competitive?," 2006 Meeting Papers 514, Society for Economic Dynamics.
  8. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
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Cited by:
  1. Jan Bouckaert & Hans Degryse & Thomas Provoost, 2008. "Enhancing Market Power by Reducing Switching Costs," CESifo Working Paper Series 2449, CESifo Group Munich.
  2. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2013. "Heterogenous switching costs," IDEI Working Papers 809, Institut d'Économie Industrielle (IDEI), Toulouse.
  3. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2013. "Heterogenous switching costs," TSE Working Papers 13-451, Toulouse School of Economics (TSE).
  4. Rhodes, Andrew, 2013. "Re-examining the Effects of Switching Costs," MPRA Paper 45982, University Library of Munich, Germany.
  5. Cabral, Luís M B, 2012. "Switching Costs and Equilibrium Prices," CEPR Discussion Papers 8970, C.E.P.R. Discussion Papers.
  6. Gary Biglaiser & Jacques Crémer & Gergely Dobos, 2014. "Heterogenous Switching Costs," CESifo Working Paper Series 4587, CESifo Group Munich.
  7. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2010. "The value of switching costs," TSE Working Papers 10-142, Toulouse School of Economics (TSE), revised 30 Oct 2012.
  8. Jean-Pierre Ponssard, 2008. "Short term entry barriers may be good for long term competition," Working Papers hal-00347663, HAL.

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