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Multi-period Competition with Switching Costs: An Overlapping Generations Formulation

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  • To, Theodore

Abstract

The author examines an infinite-period duopoly market with positive consumer switching costs and overlapping generations of consumers. When consumers have a finite time-horizon, then, unlike A. Beggs and R. Klemperer (1992), the two firms may alternate dominance from one period to the next, alternately charging high and low prices. This agrees with the intuition that firms with a high locked-in market share may set price so as to exploit that market share, which causes a subsequent low market share among the new cohort of buyers, leading to lower prices, etc. Copyright 1996 by Blackwell Publishing Ltd.

Suggested Citation

  • 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.
  • Handle: RePEc:bla:jindec:v:44:y:1996:i:1:p:81-87
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    References listed on IDEAS

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    10. Bresnahan, Timothy F., 1989. "Empirical studies of industries with market power," Handbook of Industrial Organization,in: R. Schmalensee & R. Willig (ed.), Handbook of Industrial Organization, edition 1, volume 2, chapter 17, pages 1011-1057 Elsevier.
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    12. Ghosal, Vivek, 1995. "Input Choices under Price Uncertainty," Economic Inquiry, Western Economic Association International, vol. 33(1), pages 142-158, January.
    13. Abel, Andrew B, 1983. "Optimal Investment under Uncertainty," American Economic Review, American Economic Association, pages 228-233.
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    Cited by:

    1. Andrew Rhodes, 2014. "Re-examining the effects of switching costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), pages 161-194.
    2. Lu, Jye-Chyi & Tsao, Yu-Chung & Charoensiriwath, Chayakrit & Dong, Ming, 2012. "Dynamic decision-making in a two-stage supply chain with repeated transactions," International Journal of Production Economics, Elsevier, pages 211-225.
    3. Erick Elder & Ted To, 1999. "Consumer Switching Costs and Private Information," Industrial Organization 9902001, EconWPA.
    4. Luis Cabral, 2012. "Switching Costs and Equilibrium Prices," Working Papers 12-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    5. David Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services," NBER Working Papers 19637, National Bureau of Economic Research, Inc.
    6. Suleymanova Irina & Wey Christian, 2011. "Bertrand Competition in Markets with Network Effects and Switching Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-58.
    7. Caminal, Ramon & Claici, Adina, 2007. "Are loyalty-rewarding pricing schemes anti-competitive?," International Journal of Industrial Organization, Elsevier, pages 657-674.
    8. Ed Hopkins, 2002. "Adaptive Learning Models of Consumer Behaviour (first version)," ESE Discussion Papers 80, Edinburgh School of Economics, University of Edinburgh.
    9. Curtis Eberwein & Ted To, 1998. "Dynamic Price Adjustment Under Imperfect Competition," Industrial Organization 9803002, EconWPA.
    10. Elder, Erick & To, Ted, 1999. "Consumer switching costs and private information," Economics Letters, Elsevier, pages 369-375.
    11. Shy, Oz & Stenbacka, Rune & Zhang, David Hao, 2016. "History-based versus uniform pricing in growing and declining markets," International Journal of Industrial Organization, Elsevier, pages 88-117.
    12. Baron, Mira G., 2002. "The impact of switching costs on closing of service branches," ERSA conference papers ersa02p314, European Regional Science Association.
    13. Suleymanova Irina & Wey Christian, 2011. "Bertrand Competition in Markets with Network Effects and Switching Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-58.
    14. Inderst, Roman, 2002. "Why competition may drive up prices," Journal of Economic Behavior & Organization, Elsevier, pages 451-462.
    15. Ezlika Ghazali & Bang Nguyen & Dilip S. Mutum & Amrul Asraf Mohd-Any, 2016. "Constructing online switching barriers: examining the effects of switching costs and alternative attractiveness on e-store loyalty in online pure-play retailers," Electronic Markets, Springer;IIM University of St. Gallen, pages 157-171.

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