Switching Costs and Equilibrium Prices
AbstractIn a competitive environment, switching costs have two effects. First, they increase the market power of a seller with locked-in customers. Second, they increase competition for new customers. I provide conditions under which switching costs decrease or increase equilibrium prices. Taken together, the suggest that, if markets are very competitive to begin with, then switching costs make them even more competitive; whereas if markets are not very competitive to begin with, then switching costs make them even less competitive. In the above statements, by "competitive" I mean a market that is close to a symmetric duopoly or one where the sellers' discount factor is very high.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by New York University, Leonard N. Stern School of Business, Department of Economics in its series Working Papers with number 12-04.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: New York University, Leonard N. Stern School of Business, Department of Economics, 44 West 4th Street, New York, NY 10012-1126
Phone: (212) 998-0860
Fax: (212) 995-4218
Web page: http://w4.stern.nyu.edu/economics/
More information through EDIRC
Other versions of this item:
- 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-2012-05-15 (All new papers)
- NEP-COM-2012-05-15 (Industrial Competition)
- NEP-MIC-2012-05-15 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Taylor, Curtis R, 2003.
" Supplier Surfing: Competition and Consumer Behavior in Subscription Markets,"
RAND Journal of Economics,
The RAND Corporation, vol. 34(2), pages 223-46, Summer.
- Taylor, Curtis R., 2000. "Supplier Surfing: Competition and Consumer Behavior in Subscription Markets," Working Papers 00-12, Duke University, Department of Economics.
- Tore Nilssen, 1992.
"Two Kinds of Consumer Switching Costs,"
RAND Journal of Economics,
The RAND Corporation, vol. 23(4), pages 579-589, Winter.
- J. Miguel Villas-Boas, 2006. "Dynamic Competition with Experience Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 37-66, 03.
- Kenneth S. Corts, 1998. "Third-Degree Price Discrimination in Oligopoly: All-Out Competition and Strategic Commitment," RAND Journal of Economics, The RAND Corporation, vol. 29(2), pages 306-323, Summer.
- Fabra, Natalia & García, Alfredo, 2012. "Dynamic Price Competition with Switching Costs," CEPR Discussion Papers 8849, C.E.P.R. Discussion Papers.
- Drew Fudenberg & Jean Tirole, 1999.
"Customer Poaching and Brand Switching,"
Harvard Institute of Economic Research Working Papers
1871, Harvard - Institute of Economic Research.
- Farrell, Joseph & Shapiro, Carl, 1988.
"Dynamic Competition with Switching Costs,"
Department of Economics, Working Paper Series
qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
- Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September.
- Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
- V. Brian Viard, 2007. "Do switching costs make markets more or less competitive? The case of 800-number portability," RAND Journal of Economics, RAND Corporation, vol. 38(1), pages 146-163, 03.
- 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.
- Rhodes, Andrew, 2013. "Re-examining the Effects of Switching Costs," MPRA Paper 45982, University Library of Munich, Germany.
- To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
- Yongmin Chen & Jason Pearcy, 2010. "Dynamic pricing: when to entice brand switching and when to reward consumer loyalty," RAND Journal of Economics, RAND Corporation, vol. 41(4), pages 674-685.
- Wilson, Chris M, 2009. "Market Frictions: A Unified Model of Search and Switching Costs," MPRA Paper 13672, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Viveca Licata).
If references are entirely missing, you can add them using this form.