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Two Kinds of Consumer Switching Costs


  • Nilssen, T.


In this article, I introduce a distinction between two kinds of consumer switching costs: "transaction costs" and "learning costs." While transaction costs are incurred by a consumer at every switch between suppliers, learning costs are incurred only at a switch to a supplier that is new to him. In a multiperiod duopoly model, I examine the effects of changing the proportion of each kind of consumer switching costs, while holding total switching costs constant. I show that an increase in transaction costs, relative to learning costs, increases the price offered to loyal consumers. This, then, has the further effect of decreasing the introductory price in the market. It also leads to a decrease in welfare.
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Suggested Citation

  • Nilssen, T., 1990. "Two Kinds of Consumer Switching Costs," Papers 12-90, Norwegian School of Economics and Business Administration-.
  • Handle: RePEc:fth:norgee:12-90

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    References listed on IDEAS

    1. Norman, Victor D., 1989. "Trade policy under imperfect competition Theoretical ambiguities -- empirical regularities?," European Economic Review, Elsevier, vol. 33(2-3), pages 473-479, March.
    2. Baldwin, R. & Flam, H., 1989. "Strategic Trade Policies In The Market For 30-40 Seat Consumer Aircraft," Papers 431, Stockholm - International Economic Studies.
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