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Consumer Switching Costs and Private Information

  • Erick Elder

    (University of Arkansas at Little Rock)

  • Ted To

    (University of Warwick)

We consider a standard model of consumer switching costs with demand uncertainty where firms observe private information about demand. Given this private information, each firm forms beliefs over different demand realizations as well as beliefs over the other firm's information. The main result here is that in the first period, if firms observe information suggesting that future demand is likely to be high, they will price aggressively, sacrificing current profits for higher market share and the expectation of higher future profits.

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File URL: http://econwpa.repec.org/eps/io/papers/9902/9902001.pdf
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Paper provided by EconWPA in its series Industrial Organization with number 9902001.

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Date of creation: 13 Feb 1999
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Handle: RePEc:wpa:wuwpio:9902001
Note: Type of Document - Tex; prepared on IBM PC; to print on any;
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Klemperer, Paul, 1989. "Price Wars Caused by Switching Costs," Review of Economic Studies, Wiley Blackwell, vol. 56(3), pages 405-20, July.
  2. Theodore To, 1999. "Dynamics and Discriminatory Import Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 1057-1068, August.
  3. To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
  4. 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.
  5. von Weizsacker, C Christian, 1984. "The Costs of Substitution," Econometrica, Econometric Society, vol. 52(5), pages 1085-1116, September.
  6. Hartigan, James C, 1996. "Perverse Consequences of the GATT: Export Subsidies and Switching Costs," Economica, London School of Economics and Political Science, vol. 63(249), pages 153-61, February.
  7. Chevalier, Judith A & Scharfstein, David S, 1996. "Capital-Market Imperfections and Countercyclical Markups: Theory and Evidence," American Economic Review, American Economic Association, vol. 86(4), pages 703-25, September.
  8. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  9. Beggs, Alan & Klemperer, Paul, 1990. "Multi-Period Competition with Switching Costs," CEPR Discussion Papers 436, C.E.P.R. Discussion Papers.
  10. Greaney, Theresa M., 2000. "Righting past wrongs: can import promotion policies counter hysteresis from past trade protection in the presence of switching costs?," Japan and the World Economy, Elsevier, vol. 12(3), pages 211-227, September.
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