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Heterogenous switching costs

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

    We consider a simple two period model where consumers have different switching costs. Before the market opens, there was an incumbent who sold to all consumers. We identify the equilibrium both with Stackelberg and Bertrand competition and show how the presence of low switching cost consumers benefits the incumbent, despite the fact that it never sells to any of them.

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    File URL: http://idei.fr/doc/wp/2013/wp_idei_809.pdf
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    Bibliographic Info

    Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 809.

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    Date of creation: Dec 2013
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    Handle: RePEc:ide:wpaper:27786

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    Keywords: switching; cost;

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    1. Paulo Somaini & Liran Einav, 2013. "A Model of Market Power in Customer Markets," Journal of Industrial Economics, Wiley Blackwell, vol. 61(4), pages 938-986, December.
    2. Bouckaert, J.M.C. & Degryse, H.A. & Provoost, T., 2008. "Enhancing Market Power by Reducing Switching Costs," Discussion Paper, Tilburg University, Center for Economic Research 2008-91, Tilburg University, Center for Economic Research.
    3. Biglaiser, Gary & Crémer, Jacques & Dobos, Gergely, 2010. "The value of switching costs," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 596, Institut d'Économie Industrielle (IDEI), Toulouse, revised 30 Oct 2012.
    4. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 102(2), pages 375-94, May.
    5. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
    6. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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