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Consumer Switching Costs and Private Information

Author

Listed:
  • Erick Elder

    (University of Arkansas at Little Rock)

  • Ted To

    (University of Warwick)

Abstract

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.

Suggested Citation

  • Erick Elder & Ted To, 1999. "Consumer Switching Costs and Private Information," Industrial Organization 9902001, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:9902001
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    References listed on IDEAS

    as
    1. To, Theodore, 1994. "Export subsidies and oligopoly with switching costs," Journal of International Economics, Elsevier, vol. 37(1-2), pages 97-110, August.
    2. Paul Klemperer, 1989. "Price Wars Caused by Switching Costs," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 56(3), pages 405-420.
    3. 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 703-725, September.
    4. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
    5. von Weizsacker, C Christian, 1984. "The Costs of Substitution," Econometrica, Econometric Society, vol. 52(5), pages 1085-1116, September.
    6. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 102(2), pages 375-394.
    7. Theodore To, 1999. "Dynamics and Discriminatory Import Policy," Canadian Journal of Economics, Canadian Economics Association, vol. 32(4), pages 1057-1068, August.
    8. 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.
    9. 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 153-161, February.
    10. Beggs, Alan W & Klemperer, Paul, 1992. "Multi-period Competition with Switching Costs," Econometrica, Econometric Society, vol. 60(3), pages 651-666, May.
    11. Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
    12. 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.
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    Cited by:

    1. Jai, Tun-Min (Catherine) & King, Nancy J., 2016. "Privacy versus reward: Do loyalty programs increase consumers' willingness to share personal information with third-party advertisers and data brokers?," Journal of Retailing and Consumer Services, Elsevier, vol. 28(C), pages 296-303.

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    More about this item

    Keywords

    consumer switching costs; oligopoly theory; private information;
    All these keywords.

    JEL classification:

    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance

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