Market structure and the competitive effects of switching costs Articles uri icon

publication date

  • January 2015

start page

  • 150

end page

  • 155

volume

  • 126

international standard serial number (ISSN)

  • 0165-1765

electronic international standard serial number (EISSN)

  • 1873-7374

abstract

  • We revisit the effects of switching costs on dynamic competition. We consider stationary Markovian strategies, with market shares being the state variable, and characterize a relatively simple Markov Perfect pricing equilibrium at which there is switching by some consumers at all times. For the case of low switching costs and infinitely lived consumers, we show that switching costs are pro-competitive in the long-run (steady state) while the overall effect in the short-run (transient state) depends on market structure. In particular, switching costs are anti-competitive in relatively concentrated markets, and procompetitive otherwise. (C) 2015 Elsevier B.V. All rights reserved.

keywords

  • dynamic price-competition; experience goods