Switching Costs and Equilibrium Prices
In 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.
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- Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
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"Dynamic Competition with Switching Costs,"
Department of Economics, Working Paper Series
qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
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- 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.
- 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.
- Nilssen, T., 1990.
"Two Kinds of Consumer Switching Costs,"
12-90, Norwegian School of Economics and Business Administration-.
- 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.
- Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
- Taylor, Curtis R., 2000.
"Supplier Surfing: Competition and Consumer Behavior in Subscription Markets,"
00-12, Duke University, Department of Economics.
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- Drew Fudenberg & Jean Tirole, 1999.
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Harvard Institute of Economic Research Working Papers
1871, Harvard - Institute of Economic Research.
- Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
- J. Miguel Villas-Boas, 2006. "Dynamic Competition with Experience Goods," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 15(1), pages 37-66, 03.
- Andrew Rhodes, 2014.
"Re-examining the effects of switching costs,"
Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 161-194, September.
- 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.
- V. Brian Viard, 2007.
"Do switching costs make markets more or less competitive? The case of 800-number portability,"
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RAND Corporation, vol. 38(1), pages 146-163, 03.
- Viard, V. Brian, 2005. "Do Switching Costs Make Markets More or Less Competitive? The Case of 800-Number Portability," Research Papers 1773r3, Stanford University, Graduate School of Business.
- Fabra, Natalia & García, Alfredo, 2012. "Dynamic Price Competition with Switching Costs," CEPR Discussion Papers 8849, C.E.P.R. Discussion Papers.
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