Re-examining the effects of switching costs

Rhodes, Andrew (2014) Re-examining the effects of switching costs. Economic Theory, 57 (1). pp. 161-194.

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Official URL: http://tse-fr.eu/pub/29121

Abstract

Consumers often incur costs when switching from one product to another. Recently, there has been renewed debate within the literature about whether these switching costs lead to higher prices. We build a theoretical model of dynamic competition and solve it analytically for a wide range of switching costs. We provide a simple condition which determines whether switching costs raise or lower long-run prices. We also show that even if switching costs reduce prices in the long run, they may still increase prices in the short run. Finally, switching costs redistribute surplus across time, and as such are shown to sometimes increase consumer welfare.

Item Type: Article
Language: English
Date: September 2014
Refereed: Yes
Uncontrolled Keywords: Switching costs, Dynamic competition, Markov perfect equilibrium, Linear-quadratic games
JEL codes: D21 - Firm Behavior
L11 - Production, Pricing, and Market Structure; Size Distribution of Firms
Subjects: B- ECONOMIE ET FINANCE
Divisions: TSE-R (Toulouse)
Site: UT1
Date Deposited: 16 Mar 2015 14:56
Last Modified: 07 Mar 2018 13:23
OAI ID: oai:tse-fr.eu:29121
URI: http://publications.ut-capitole.fr/id/eprint/16724

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