Smart Entry Strategies for Markets with Switching Costs

Florian Bartholomae (), Karl Morasch () and Rita Orsolya Toth ()
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Karl Morasch: Universität der Bundeswehr
Rita Orsolya Toth: Universität der Bundeswehr

A chapter in Operations Research Proceedings 2010, 2011, pp 65-70 from Springer

Abstract: Abstract In this paper we consider a market with switching costs that is initially served by a monopolistic incumbent. How can a competitor successfully enter this market? We show that an offer to undercut the incumbent by a fixed margin serves this purpose. This strategy dominates traditional entry where the entrant just offers a lower price because it restrains the ability of the incumbent to block entry by limit pricing. We also consider adding a price ceiling to insure customers against future price increases. This strategy turns out to be the preferable one for entering markets with elastic demand.

Keywords: Switching Cost; Consumer Surplus; Price Competition; Elastic Demand; Limit Price (search for similar items in EconPapers)
Date: 2011
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Persistent link: https://EconPapers.repec.org/RePEc:spr:oprchp:978-3-642-20009-0_11

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DOI: 10.1007/978-3-642-20009-0_11

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