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Markets with Search and Switching Costs

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  • Wilson, Chris

Abstract

By incorporating the additional existence of switching costs into an oligopoly search model by Stahl (1989), this paper dispels the misleading idea that search costs can simply be treated as a form of switching cost. Due to the assumption that search costs, unlike switching costs, are incurred unconditionally on the decision to switch suppliers it is shown that the anticompetitive effects of search costs are consistently larger than those from an equivalent level of switching costs. The finding suggests that obfuscation practices that aim to deter consumers from searching, such as competing on deliberately complex tariffs, may be particularly powerful relative to practices that increase the costs of substitution between firms, such as loyalty programs or termination fees.

Suggested Citation

  • Wilson, Chris, 2006. "Markets with Search and Switching Costs," MPRA Paper 131, University Library of Munich, Germany, revised 06 Oct 2006.
  • Handle: RePEc:pra:mprapa:131
    as

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    File URL: https://mpra.ub.uni-muenchen.de/131/1/MPRA_paper_131.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Search costs; Switching costs; Obfuscation;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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