Entry Deterrence in Markets with Consumer Switching Costs

Paul Klemperer

Economic Journal, 1987, vol. 97, issue 388a, 99-117

Abstract: In many markets consumers have transaction or learning "switching costs" between functionally undifferentiated brands. New entry into such markets may be deterred either by large customer bases and/or large switching costs, which deny customers to an entrant, or by small customer bases and/or small switching costs, which mean an incumbent will respond aggressively to an entrant. An incum bent threatened by entry may therefore price either lower or higher than otherwi se. A firm with the right to enter early may make less profits over time than an otherwise identical firm that is unable to enter the market until later. Copyright 1987 by Royal Economic Society.

Date: 1987
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