Switching Costs, Firm Size, and Market Structure

Simon Loertscher and Yves Schneider ()

No 508, SOI - Working Papers from Socioeconomic Institute - University of Zurich

Abstract: In many markets, homogenous goods and services are sold both by large global frms and small local frms. Surprisingly, the large frms charge, often substantially, higher prices. Examples include hotels, airlines, and coffee shops. This paper provides a parsimonious model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and consumers change locations with a given positive probability. Consequently, large frms or "chain stores" insure consumers against this switching cost. The model predicts that chain stores and local stores coexist in equilibrium and that chain stores charge higher prices and yet attract more consumers than local stores. As consumer mobility increases, the profits of both local stores and chain stores increase, but the chain stores' profts increase at a faster rate.

Keywords: firm size; switching costs; consumer mobility; market structure (search for similar items in EconPapers)
JEL-codes: D43 L15 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2005-08
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Forthcoming in Journal of Institutional and Theoretical Economics

Downloads: (external link)
https://www.zora.uzh.ch/id/eprint/52205/1/wp0508.pdf First version, 2005 (application/pdf)

Related works:
Working Paper: Switching Costs, Firm Size, and Market Structure (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:soz:wpaper:0508

Access Statistics for this paper

More papers in SOI - Working Papers from Socioeconomic Institute - University of Zurich Contact information at EDIRC.
Bibliographic data for series maintained by Severin Oswald ().