A comparison of different contract forms for consumers with switching costs and changed preferences

Na Shen and Jun Su

Economic Modelling, 2015, vol. 50, issue C, 19-26

Abstract: This paper compares three contract forms, including short-term contract with price discrimination, short-term contract without price discrimination, and long-term contract with price commitment for consumers with switching costs and changed preferences. We find that long-term contract generates the largest profit for firms. Moreover, we find that switching costs make the market more competitive when consumers have changed preferences, and the higher the switching costs, the more competitive. Our theory combines linear-city duopoly and switching-cost model and the results are consistent with literature, for example price commitment is valuable. Our findings shed light on the practice of different forms of dynamic pricing in various industries including telecommunication industry and airline industry.

Keywords: Switching costs; Changed preferences; Contract design; Equilibrium price (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:50:y:2015:i:c:p:19-26

DOI: 10.1016/j.econmod.2015.05.014

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