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A Mixed Duopoly With Switching Costs

Author

Listed:
  • Jorge Fernández‐Ruiz

Abstract

We examine the effects of switching costs in a two‐period Hotelling‐type model where a profit‐maximising private firm competes with a welfare‐maximising public firm. We show that, in contrast with the case in which both firms are private, where switching costs raise prices in both periods, in the mixed duopoly they raise prices in the second period but reduce them in the first period. Moreover, the first‐period price reduction is of such magnitude that switching costs reduce firms’ profits and raise consumer welfare. We also find that switching costs affect the consequences of privatisation in favour of firms and against consumers.

Suggested Citation

  • Jorge Fernández‐Ruiz, 2019. "A Mixed Duopoly With Switching Costs," The Japanese Economic Review, Japanese Economic Association, vol. 70(2), pages 235-257, June.
    • Handle: RePEc:bla:jecrev:v:70:y:2019:i:2:p:235-257
    DOI: 10.1111/jere.12182
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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises

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