Do Switching Costs Make Markets More or Less Competitive? The Case of 800-Number Portability

V. Viard

Research Papers from Stanford University, Graduate School of Business

Abstract: Do switching costs reduce or intensify price competition if firms charge the same price to old and new consumers? I study 800-number portability to determine whether switching costs intensify price competition under a single price regime. Before portability, a customer had to change toll-free numbers in order to change service providers. In May 1993, 800-numbers became portable, under a regulatory regime that precluded price discrimination between old and new consumers. AT&T and MCI reduced their toll-free services prices in response to portability, implying that the elimination of switching costs made the market more competitive. Despite rapid growth in toll-free services, gains from higher prices to "locked-in" consumers exceeded the incentives to capture new consumers. Prices on larger contracts dropped more, consistent with greater lock-in for larger users. Price changes after portability's announcement but before implementation are consistent with rational expectations.

JEL-codes: D43 (search for similar items in EconPapers)
Date: 2005-12
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Citations: View citations in EconPapers (7)

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Journal Article: Do switching costs make markets more or less competitive? The case of 800-number portability (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:1773r3

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