Consumer Heterogeneity and Pricing in a Duopoly with Switching Costs
It is well-known that 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. We show that introducing consumer heterogeneity tends to increase the critical switching cost and thereby reduce the stability of the collusive outcome. A testable implication is that widespread price discrimination should go hand in hand with efforts to create switching costs.
|Date of creation:||01 Aug 2000|
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- Joseph Farrell & Carl Shapiro, 1988.
"Dynamic Competition with Switching Costs,"
RAND Journal of Economics,
The RAND Corporation, vol. 19(1), pages 123-137, Spring.
- Farrell, Joseph & Shapiro, Carl, 1988. "Dynamic Competition with Switching Costs," Department of Economics, Working Paper Series qt1h02g9q4, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Joseph Farrell and Carl Shapiro., 1988. "Dynamic Competition with Switching Costs," Economics Working Papers 8865, University of California at Berkeley.
- Jean-Charles Rochet & Lars A. Stole, 2002.
"Nonlinear Pricing with Random Participation,"
Review of Economic Studies,
Oxford University Press, vol. 69(1), pages 277-311.
- Beggs, Alan & Klemperer, Paul, 1990.
"Multi-Period Competition with Switching Costs,"
CEPR Discussion Papers
436, C.E.P.R. Discussion Papers.
- Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826, March.
- Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
- Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
- Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
- Klemperer, Paul, 1995. "Competition When Consumers Have Switching Costs: An Overview with Applications to Industrial Organization, Macroeconomics, and International Trade," Review of Economic Studies, Wiley Blackwell, vol. 62(4), pages 515-39, October.
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