The value of switching costs

Gary Biglaiser, Jacques Crémer and Gergely Dobos

Journal of Economic Theory, 2013, vol. 148, issue 3, 935-952

Abstract: We study a dynamic model with an incumbent monopolist and entry in every subsequent period. We first show that if all consumers have the same switching cost, then the intertemporal profits of the incumbent are the same as if there was only one period. We then study the consequences of heterogeneity of switching costs. We prove that even low switching cost customers have value for the incumbent: when there are more of them its profits increase as their presence hinders entrants who find it more costly to attract high switching cost customers.

Keywords: Switching cost; Dynamic competition; Incumbency; Entry (search for similar items in EconPapers)
JEL-codes: D43 L12 L13 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (28)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053113000343
Full text for ScienceDirect subscribers only

Related works:
Working Paper: The value of switching costs (2012)
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:eee:jetheo:v:148:y:2013:i:3:p:935-952

DOI: 10.1016/j.jet.2012.10.010

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().