The Relationship between Pricing and Consumers Switching Costs: Comparisons between the Myopic and Perfect-foresight Equilibria

Omar A. Abdelrahman

International Business Research, 2017, vol. 10, issue 3, 221-231

Abstract: In many markets, consumers face costs of switching to a competitor’s brand that is ex ante undifferentiated even when the two firms’ brands are functionally identical. This study examines the relationship between pricing and consumers witching costs or “brand loyalty”. Moreover, it suggests that in the presence of switching costs, firms will charge lower prices in the first period to gain market share that will be valuable to them in the future and therefore charge higher prices later utilizing the market shares they have gained in the first period. This will give firms a degree of monopoly power over their existing customers, leading to higher prices and profits in the future. This will happen if firms have perfect foresight, and it may lead to either higher or lower equilibrium profits than if firms behave myopically.

Keywords: switching costs; duopoly; myopic; perfect-foresight (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.ccsenet.org/journal/index.php/ibr/article/view/66540/36058 (application/pdf)
http://www.ccsenet.org/journal/index.php/ibr/article/view/66540 (text/html)

Related works:
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:ibn:ibrjnl:v:10:y:2017:i:3:p:221-231

Access Statistics for this article

More articles in International Business Research from Canadian Center of Science and Education Contact information at EDIRC.
Bibliographic data for series maintained by Canadian Center of Science and Education ().