Spatial models of heterogeneous switching costs
Paolo Siciliani and
Walter Beckert ()
No 689, Bank of England working papers from Bank of England
The presence of sticky, often labelled ‘unengaged’, consumers is arguably one of the most intractable issues faced by competition regulators, in that it entrenches incumbency advantage. We develop a spatial linear model of heterogeneous switching costs that allows for asymmetric distributions of heterogeneous switching costs. We not only model uniform pricing and history-based price discrimination, but also the impact of regulatory intervention aimed at making it easier for customers to be upgraded to a better tariff from their current service provider, something we call ‘leakage’. Finally, we analyse firms’ incentive to adopt history-based price discrimination and voluntarily permit ‘leakage’.
Keywords: Switching costs; unengaged ‘sticky’ customers; spatial linear model; uniform pricing; history-based price discrimination; ‘leakage’ (search for similar items in EconPapers)
JEL-codes: D43 L11 L44 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0689
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