 What types of switching costs to create under behavior-based price discrimination?Ki-Eun Rhee International Journal of Industrial Organization, 2014, vol. 37, issue C, 209-221 Abstract: We study firms' incentives to create switching costs using a four-period model consisting of two consecutive price-competing stages intervened by options to create switching costs early (before price competition) and late (during price competition). Acknowledging that many real/social switching costs need to be created early while many contractual/pecuniary switching costs are set up late during the competition, we show that firms are better off minimizing real/social switching costs while maximizing contractual/pecuniary switching costs. The results highlight the importance of timing of creation that is embedded in different types of switching costs. We also show that switching costs can actually benefit consumers when firms practice behavior-based price discrimination because consumers can enjoy benefits of deep price discounts without the hassle of actually switching. Therefore, an observed lack of consumer switching should not be immediately interpreted as lack of competition in markets where both switching costs and behavior-based pricing exist. Keywords: Endogenous switching costs; Behavior-based price discrimination; Dynamic pricing games (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:indorg:v:37:y:2014:i:c:p:209-221 DOI: 10.1016/j.ijindorg.2014.09.003 Access Statistics for this article International Journal of Industrial Organization is currently edited by P. Bajari, B. Caillaud and N. Gandal More articles in International Journal of Industrial Organization from Elsevier |
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