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Some Implications of Search Costs for the Price Dynamics of Electronic Markets

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Author Info
Pedro Pereira () (Autoridade da Concorrência)

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Abstract

This paper develops a model based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e-commerce. Switching costs and intertemporal cost correlation lock-in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservations prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.

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File URL: http://www.concorrencia.pt/download/WP02_PDFR.pdf
File Format: application/pdf
File Function: First version, 2004
Download Restriction: no

Publisher Info
Paper provided by Portuguese Competition Authority in its series Working Papers with number 02.

Download reference. The following formats are available: HTML, plain text, BibTeX, RIS (EndNote), ReDIF
Length: 30 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:pca:wpaper:02

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Related research
Keywords: E-Commerce Search Switching Costs Learning Industry Evolution

Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce
O31 - Economic Development, Technological Change, and Growth - - Technological Change - - - Innovation and Invention: Processes and Incentives
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes

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This page was last updated on 2008-11-1.

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