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.
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- Joseph Farrell and Carl Shapiro., 1988.
"Dynamic Competition with Switching Costs,"
Economics Working Papers
8865, University of California at Berkeley.
- Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
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Wiley Blackwell, vol. 69(1), pages 277-311, January.
- 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.
- repec:tpr:qjecon:v:102:y:1987:i:2:p:375-94 is not listed on IDEAS
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