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Competition with asymmetric switching costs

  • Sebátian Infante
  • Nicolás Figueroa

    ()

  • Ronald Fischer

    ()

We analyze the effects of asymmetric switching costs on two identical firms that produce an homogeneous good and compete in prices. Both firms inherit a fraction of themarket which is “locked-in” by the switching costs. When switching costs are low, firms face a tradeoff between charging a high price to their locked in customers, or pricing aggressively in order to attract the rival’s market share. We characterize the (pure and mixed) equilibrium strategies and the associated payoffs for any pair of switching costs in the unit square.

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File URL: http://www.dii.uchile.cl/~cea/sitedev/cea/www/download.php?file=documentos_trabajo/ASOCFILE120071211084434.pdf
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Paper provided by Centro de Economía Aplicada, Universidad de Chile in its series Documentos de Trabajo with number 241.

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Date of creation: 2007
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Handle: RePEc:edj:ceauch:241
Contact details of provider: Web page: http://www.dii.uchile.cl/cea/
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  1. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers.
  2. Yongmin Chen, 1997. "Paying Customers to Switch," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 877-897, December.
  3. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
  4. Shilony, Yuval, 1977. "Mixed pricing in oligopoly," Journal of Economic Theory, Elsevier, vol. 14(2), pages 373-388, April.
  5. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
  6. Gabrielsen, T.S. & Vagstad, S., 2001. "Consumer Heterogeneity and Pricing in a Duopoly with Switching Costs," Norway; Department of Economics, University of Bergen 0801, Department of Economics, University of Bergen.
  7. Hugo Sonnenschein, 1968. "The Dual of Duopoly Is Complementary Monopoly: or, Two of Cournot's Theories Are One," Journal of Political Economy, University of Chicago Press, vol. 76, pages 316.
  8. 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.
  9. Padilla, A. Jorge, 1992. "Mixed pricing in oligopoly with consumer switching costs," International Journal of Industrial Organization, Elsevier, vol. 10(3), pages 393-411, September.
  10. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  11. 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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