Market structure and the competitive effects of switching costs

Natalia Fabra and Alfredo García

Economics Letters, 2015, vol. 126, issue C, 150-155

Abstract: We revisit the effects of switching costs on dynamic competition. We consider stationary Markovian strategies, with market shares being the state variable, and characterize a relatively simple Markov Perfect pricing equilibrium at which there is switching by some consumers at all times. For the case of low switching costs and infinitely lived consumers, we show that switching costs are pro-competitive in the long-run (steady state) while the overall effect in the short-run (transient state) depends on market structure. In particular, switching costs are anti-competitive in relatively concentrated markets, and pro-competitive otherwise.

Keywords: Switching costs; Continuous-time model; Markov-perfect equilibrium; Differential games; Market concentration (search for similar items in EconPapers)
JEL-codes: C7 L1 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:126:y:2015:i:c:p:150-155

DOI: 10.1016/j.econlet.2014.12.008

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