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Markets with Consumer Switching Costs and Non-Linear Pricing

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Abstract

In a non-cooperative oligopoly model where firms use simple linear prices, Klemperer (1987) has shown that the existence of consumers’ switching costs may generate monopoly like prices, and thereby create substantial loss in welfare. We show that when allowing firms to use two-part tariffs, social optimal prices are always set and the size and distribution of switching costs only affect the distribution of surplus between fims and consumers.

Suggested Citation

  • Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2002. "Markets with Consumer Switching Costs and Non-Linear Pricing," Working Papers in Economics 04/02, University of Bergen, Department of Economics.
  • Handle: RePEc:hhs:bergec:2002_004
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    File URL: http://www.uib.no/filearchive/04-02.pdf
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    Cited by:

    1. Gabrielsen, Tommy Staahl & Vagstad, Steinar, 2008. "Why is on-net traffic cheaper than off-net traffic Access markup as a collusive device," European Economic Review, Elsevier, vol. 52(1), pages 99-115, January.

    More about this item

    Keywords

    switching costs; non-linear pricing; duopoly;

    JEL classification:

    • D44 - Microeconomics - - Market Structure, Pricing, and Design - - - Auctions
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L10 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - General
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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