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Multi-period Competition with Switching Costs: An Overlapping Generations Formulation

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  • To, Theodore

Abstract

The author examines an infinite-period duopoly market with positive consumer switching costs and overlapping generations of consumers. When consumers have a finite time-horizon, then, unlike A. Beggs and R. Klemperer (1992), the two firms may alternate dominance from one period to the next, alternately charging high and low prices. This agrees with the intuition that firms with a high locked-in market share may set price so as to exploit that market share, which causes a subsequent low market share among the new cohort of buyers, leading to lower prices, etc. Copyright 1996 by Blackwell Publishing Ltd.

Suggested Citation

  • 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.
    • Handle: RePEc:bla:jindec:v:44:y:1996:i:1:p:81-87
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    Cited by:

    1. Guillem Roig, 2021. "Collusive equilibria with switching costs: The effect of consumer concentration," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 30(1), pages 100-121, February.
    2. David Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services," NBER Working Papers 19637, National Bureau of Economic Research, Inc.
    3. Suleymanova Irina & Wey Christian, 2011. "Bertrand Competition in Markets with Network Effects and Switching Costs," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 11(1), pages 1-58, September.
    4. Ed Hopkins, 2002. "Adaptive Learning Models of Consumer Behaviour (first version)," Edinburgh School of Economics Discussion Paper Series 80, Edinburgh School of Economics, University of Edinburgh.
    5. Eberwein, Curtis & To, Ted, 1998. "Dynamic Price Adjustment Under Imperfect Competition," Economic Research Papers 268787, University of Warwick - Department of Economics.
    6. Paolo Buccirossi, 1999. "Buyers' decision and price competition," Working Papers in Public Economics 36, Department of Economics and Law, Sapienza University of Roma.
    7. Nicolas Eber, 1999. "Switching costs and implicit contracts," Journal of Economics, Springer, vol. 69(2), pages 159-171, June.
    8. Elder, Erick & To, Ted, 1999. "Consumer switching costs and private information," Economics Letters, Elsevier, vol. 63(3), pages 369-375, June.
    9. Toker Doganoglu, 2010. "Switching costs, experience goods and dynamic price competition," Quantitative Marketing and Economics (QME), Springer, vol. 8(2), pages 167-205, June.
    10. Caminal, Ramon & Claici, Adina, 2007. "Are loyalty-rewarding pricing schemes anti-competitive?," International Journal of Industrial Organization, Elsevier, vol. 25(4), pages 657-674, August.
    11. Nagesh N. Murthy & Milind Shrikhande & Ajay Subramanian, 2007. "Switching costs, dynamic uncertainty, and buyer–seller relationships," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(8), pages 859-873, December.
    12. Ezlika Ghazali & Bang Nguyen & Dilip S. Mutum & Amrul Asraf Mohd-Any, 2016. "Constructing online switching barriers: examining the effects of switching costs and alternative attractiveness on e-store loyalty in online pure-play retailers," Electronic Markets, Springer;IIM University of St. Gallen, vol. 26(2), pages 157-171, May.
    13. Omar A. Abdelrahman, 2017. "The Relationship between Pricing and Consumers Switching Costs: Comparisons between the Myopic and Perfect-foresight Equilibria," International Business Research, Canadian Center of Science and Education, vol. 10(3), pages 221-231, March.
    14. Jiawei Chen, 2009. "Switching Costs and Dynamic Price Competition in Network Industries," Working Papers 09-25, NET Institute, revised Apr 2010.
    15. Andrew Rhodes, 2014. "Re-examining the effects of switching costs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 57(1), pages 161-194, September.
    16. Lu, Jye-Chyi & Tsao, Yu-Chung & Charoensiriwath, Chayakrit & Dong, Ming, 2012. "Dynamic decision-making in a two-stage supply chain with repeated transactions," International Journal of Production Economics, Elsevier, vol. 137(2), pages 211-225.
    17. Luis Cabral, 2012. "Switching Costs and Equilibrium Prices," Working Papers 12-04, New York University, Leonard N. Stern School of Business, Department of Economics.
    18. Shy, Oz & Stenbacka, Rune & Zhang, David Hao, 2016. "History-based versus uniform pricing in growing and declining markets," International Journal of Industrial Organization, Elsevier, vol. 48(C), pages 88-117.
    19. Baron, Mira G., 2002. "The impact of switching costs on closing of service branches," ERSA conference papers ersa02p314, European Regional Science Association.
    20. Inderst, Roman, 2002. "Why competition may drive up prices," Journal of Economic Behavior & Organization, Elsevier, vol. 47(4), pages 451-462, April.

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