 Positioning and pricing strategies in a market with switching costs and staying costsYuncheol Jeong and Masayoshi Maruyama Information Economics and Policy, 2018, vol. 44, issue C, 47-57 Abstract: We analyze positioning and pricing strategies in a two-period duopoly where consumers have heterogeneous switching costs and staying costs. In the second period, we show that firms offer discounts to new customers in a market where there are more inertial consumers with large switching costs, while firms offer discounts to past customers in a market where there are more variety-seeking consumers with large staying costs. If in the second period of our model there exist both inertial consumers and variety-seeking consumers, horizontal product differentiation is minimized and both firms locate at the center of the Hotelling line market. Furthermore, when consumers are relatively sophisticated (forward-looking), behavior-based price discrimination (BBPD) hurts firms’ profits as shown in the previous literature. However, when consumers are sufficiently naive (or myopic) and do not care much about the second period when making first-period decisions, we find that BBPD can be profitable. Keywords: Behavior-based pricing; Switching cost; Staying cost; Customer poaching; Loyal customer discounts; Positioning (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:iepoli:v:44:y:2018:i:c:p:47-57 DOI: 10.1016/j.infoecopol.2018.03.001 Access Statistics for this article Information Economics and Policy is currently edited by D. Waterman More articles in Information Economics and Policy from Elsevier |
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