Do Switching Costs Make Markets More or Less Competitive? The Case of 800-Number Portability
Do switching costs reduce or intensify price competition if firms charge the same price to old and new consumers? I study 800-number portability to determine whether switching costs intensify price competition under a single price regime. Before portability, a customer had to change toll-free numbers in order to change service providers. In May 1993, 800-numbers became portable, under a regulatory regime that precluded price discrimination between old and new consumers. AT&T and MCI reduced their toll-free services prices in response to portability, implying that the elimination of switching costs made the market more competitive. Despite rapid growth in toll-free services, gains from higher prices to "locked-in" consumers exceeded the incentives to capture new consumers. Prices on larger contracts dropped more, consistent with greater lock-in for larger users. Price changes after portability's announcement but before implementation are consistent with rational expectations.
|Date of creation:||Dec 2005|
|Contact details of provider:|| Postal: Stanford University, Stanford, CA 94305-5015|
Phone: (650) 723-2146
Web page: http://gsbapps.stanford.edu/researchpapers/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven A. Sharpe, 1992. "Consumer switching costs, market structure and prices: the theory and its application in the bank deposit market," Finance and Economics Discussion Series 183, Board of Governors of the Federal Reserve System (U.S.).
- Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
- Tore Nilssen, 1992.
"Two Kinds of Consumer Switching Costs,"
RAND Journal of Economics,
The RAND Corporation, vol. 23(4), pages 579-589, Winter.
- Nilssen, T., 1990. "Two Kinds of Consumer Switching Costs," Papers 12-90, Norwegian School of Economics and Business Administration-.
- Kaserman, David L. & Mayo, John W., 1991. "Competition for 800 service : An economic evaluation," Telecommunications Policy, Elsevier, vol. 15(5), pages 395-410, October.
- Moshe Kim & Doron Kliger & Bent Vale, 2001. "Estimating Switching Costs and Oligopolistic Behavior," Center for Financial Institutions Working Papers 01-13, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Calem, Paul S & Mester, Loretta J, 1995. "Consumer Behavior and the Stickiness of Credit-Card Interest Rates," American Economic Review, American Economic Association, vol. 85(5), pages 1327-1336, December.
- Paul S. Calem & Loretta J. Mester, "undated". "Consumer Behavior and the Stickiness of CreditCard Interest Rates," Rodney L. White Center for Financial Research Working Papers 3-94, Wharton School Rodney L. White Center for Financial Research.
- Paul S. Calem & Loretta J. Mester, "undated". "Consumer Behavior and the Stickiness of CreditCard Interest Rates," Rodney L. White Center for Financial Research Working Papers 03-94, Wharton School Rodney L. White Center for Financial Research.
- Paul S. Calem & Loretta J. Mester, 1995. "Consumer behavior and the stickiness of credit card interest rates," Working Papers 95-10, Federal Reserve Bank of Philadelphia.
- Paul S. Calem & Loretta J. Mester, 1994. "Consumer Behavior and the Stickiness of Credit Card Interest Rates," Center for Financial Institutions Working Papers 94-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Kenneth G. Elzinga & David E. Mills, 1998. "Switching Costs in the Wholesale Distribution of Cigarettes," Southern Economic Journal, Southern Economic Association, vol. 65(2), pages 282-293, October.
- MacAvoy, Paul W, 1995. "Tacit Collusion under Regulation in the Pricing of Interstate Long-Distance Telephone Services," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(2), pages 147-185, Summer.
- Severin Borenstein, 1991. "Selling Costs and Switching Costs: Explaining Retail Gasoline Margins," RAND Journal of Economics, The RAND Corporation, vol. 22(3), pages 354-369, Autumn.
- Caminal, Ramon & Matutes, Carmen, 1990. "Endogenous switching costs in a duopoly model," International Journal of Industrial Organization, Elsevier, vol. 8(3), pages 353-373, September. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:ecl:stabus:1773r3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.