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On Quantity Competition With Switching Costs

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Author Info
Langus, Gregor
Lipatov, Vilen

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Abstract

We build a simple model of quantity competition to analyze the effect of switching costs on equilibrium behavior of duopolists. We characterize the industry structure as a function of initial sales of two firms. Contrary to the literature, initial asymmetries persist in our model even though the firms are identical. When the disparity between initial sales is large, the smaller firm may become very aggressive and get more than half of the market in equilibrium. When the firms have similar initial positions, they tend to be locked in them.

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File URL: http://mpra.ub.uni-muenchen.de/15457/
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Publisher Info
Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15457.

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Date of creation: 2008
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Handle: RePEc:pra:mprapa:15457

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Related research
Keywords: quantity competition; switching costs;

Find related papers by JEL classification:
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

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  1. Padilla, A. Jorge, 1992. "Mixed pricing in oligopoly with consumer switching costs," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 393-411, September. [Downloadable!] (restricted)
  2. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring. [Downloadable!] (restricted)
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  3. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring. [Downloadable!] (restricted)
  4. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May. [Downloadable!] (restricted)
  5. Farrell, Joseph & Klemperer, Paul, 2006. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," CEPR Discussion Papers 5798, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen. [Downloadable!] (restricted)
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