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On how size and composition of customer bases affect equilibrium in a duopoly with switching costs


  • Tommy Gabrielsen


  • Steinar Vagstad


Switching costs may facilitate monopoly pricing in a market with price competition between two suppliers of a homogenous good, provided the switching cost is above some critical level. It is also well known that asymmetric size of customer bases makes monopoly pricing more difficult. Adding consumer heterogeneity to the model we demonstrate that also composition of each firm’s customer base affects pricing, and this composition may aggravate or ease the incentives to break out of the monopoly pricing equilibrium. Copyright Springer-Verlag Berlin/Heidelberg 2004

Suggested Citation

  • Tommy Gabrielsen & Steinar Vagstad, 2004. "On how size and composition of customer bases affect equilibrium in a duopoly with switching costs," Review of Economic Design, Springer;Society for Economic Design, vol. 9(1), pages 59-71, December.
  • Handle: RePEc:spr:reecde:v:9:y:2004:i:1:p:59-71 DOI: 10.1007/s10058-004-0120-8

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    References listed on IDEAS

    1. Moulin, Herve, 2002. "Axiomatic cost and surplus sharing," Handbook of Social Choice and Welfare,in: K. J. Arrow & A. K. Sen & K. Suzumura (ed.), Handbook of Social Choice and Welfare, edition 1, volume 1, chapter 6, pages 289-357 Elsevier.
    2. Nir Dagan, 1996. "New characterizations of old bankruptcy rules," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 13(1), pages 51-59, January.
    3. Aumann, Robert J. & Maschler, Michael, 1985. "Game theoretic analysis of a bankruptcy problem from the Talmud," Journal of Economic Theory, Elsevier, vol. 36(2), pages 195-213, August.
    4. Toru Hokari & William Thomson, 2003. "Claims problems and weighted generalizations of the Talmud rule," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 21(2), pages 241-261, March.
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