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Consumer Heterogeneity and Pricing in a Duopoly with Switching Costs

  • Gabrielsen, T.S.
  • Vagstad, S.

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. With heterogeneous consumers monopoly pricing entails second degree price dierentiotation with inecient contracts for low demand types. We show that introducing con- sumer heterogeneity may increase the critical switching cost needed to sustain a pure-strategy equilibrium involving monopoly pricing.

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Paper provided by Department of Economics, University of Bergen in its series Norway; Department of Economics, University of Bergen with number 0801.

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Length: 20 pages
Date of creation: 2001
Date of revision:
Handle: RePEc:fth:bereco:0801
Contact details of provider: Postal: Department of Economics, University of Bergen Fosswinckels Gate 6. N-5007 Bergen, Norway
Phone: (+47)55589200
Fax: (+47)55589210
Web page:

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  1. Rochet, Jean-Charles & Stole, Lars A, 2002. "Nonlinear Pricing with Random Participation," Review of Economic Studies, Wiley Blackwell, vol. 69(1), pages 277-311, January.
  2. Stole, Lars A, 1995. "Nonlinear Pricing and Oligopoly," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 4(4), pages 529-62, Winter.
  3. 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.
  4. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-66, May.
  5. 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.
  6. Wilson, Robert, 1997. "Nonlinear Pricing," OUP Catalogue, Oxford University Press, number 9780195115826.
  7. Deneckere, R., 1983. "Duopoly supergames with product differentiation," Economics Letters, Elsevier, vol. 11(1-2), pages 37-42.
  8. repec:tpr:qjecon:v:102:y:1987:i:2:p:375-94 is not listed on IDEAS
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