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Some Implications of Search Costs for the Price Dynamics of Electronic Markets

  • Pedro Pereira


    (Autoridade da ConcorrĂȘncia)

This paper develops a model based on switching costs and technological uncertainty, which explains some aspects of the price dynamics of e-commerce. Switching costs and intertemporal cost correlation lock-in consumers. Firms initially charge low prices to build a customer base. If firms fail to reduce costs, and reservations prices are low, firms exit the industry. Over time, prices increase if no exit occurs, and decrease if exit occurs. Prices may also decrease over time, if the proportion of low search cost consumers increases.

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File Function: First version, 2004
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Paper provided by Portuguese Competition Authority in its series Working Papers with number 02.

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Length: 30 pages
Date of creation: May 2004
Date of revision:
Handle: RePEc:pca:wpaper:02
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