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On The Value Of A Large Customer Base In Markets With Switching Costs

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  • Robert C. Schmidt

Abstract

It is usually acknowledged that firms benefit from a large customer base in markets with switching costs. However, Klemperer [1995] argues that this may not be true if an increase in the size of a firm's customer base induces fierce price competition, making the firm worse off. This paper shows that such an outcome can be obtained under standard assumptions, such as homogeneous goods and uniformly distributed switching costs. In the model, firms have very limited incentives to fight for market shares, and the notion that switching costs make markets less competitive is stronger than previously shown.

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  • Robert C. Schmidt, 2010. "On The Value Of A Large Customer Base In Markets With Switching Costs," Journal of Industrial Economics, Wiley Blackwell, vol. 58(3), pages 627-641, September.
  • Handle: RePEc:bla:jindec:v:58:y:2010:i:3:p:627-641
    DOI: 10.1111/j.1467-6451.2010.00427.x
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    File URL: https://doi.org/10.1111/j.1467-6451.2010.00427.x
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    1. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
    2. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    3. Klemperer, Paul D, 1987. "Entry Deterrence in Markets with Consumer Switching Costs," Economic Journal, Royal Economic Society, vol. 97(388a), pages 99-117, Supplemen.
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