Markets with Search and Switching Costs
AbstractBy incorporating the additional existence of switching costs into an oligopoly search model by Stahl (1989), this paper dispels the misleading idea that search costs can simply be treated as a form of switching cost. Due to the assumption that search costs, unlike switching costs, are incurred unconditionally on the decision to switch suppliers it is shown that the anticompetitive effects of search costs are consistently larger than those from an equivalent level of switching costs. The finding suggests that obfuscation practices that aim to deter consumers from searching, such as competing on deliberately complex tariffs, may be particularly powerful relative to practices that increase the costs of substitution between firms, such as loyalty programs or termination fees.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 131.
Date of creation: 06 May 2006
Date of revision: 06 Oct 2006
Search costs; Switching costs; Obfuscation;
Find related papers by JEL classification:
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
- D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
- 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-2006-10-14 (All new papers)
- NEP-COM-2006-10-14 (Industrial Competition)
- NEP-MIC-2006-10-14 (Microeconomics)
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