Consumer Switching Costs and Private Information

Erick Michael Elder and Ted To

Industrial Organization from EconWPA

Abstract: We consider a standard model of consumer switching costs with demand uncertainty where firms observe private information about demand. Given this private information, each firm forms beliefs over different demand realizations as well as beliefs over the other firm's information. The main result here is that in the first period, if firms observe information suggesting that future demand is likely to be high, they will price aggressively, sacrificing current profits for higher market share and the expectation of higher future profits.

Keywords: consumer switching costs; oligopoly theory; private information (search for similar items in EconPapers)
JEL-codes: L1 (search for similar items in EconPapers)
Date: 1999-02-13
Note: Type of Document - Tex; prepared on IBM PC; to print on any;
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Journal Article: Consumer switching costs and private information (1999)
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Persistent link: http://EconPapers.repec.org/RePEc:wpa:wuwpio:9902001

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