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Consumer Heterogeneity and Pricing in a Duopoly with Switching Costs

Tommy Gabrielsen () and Steinar Vagstad ()

Norway; Department of Economics, University of Bergen from Department of Economics, University of Bergen

Abstract: It is well-known that switching costs may facilitate monopoly pricing in a market with price competition between two suppliers of a homogenous good, provided the switching cost is above some critical level. With heterogeneous consumers monopoly pricing entails second degree price dierentiotation with inecient contracts for low demand types. We show that introducing con- sumer heterogeneity may increase the critical switching cost needed to sustain a pure-strategy equilibrium involving monopoly pricing.

Keywords: PRICING; COSTS; CONSUMERS; COMPETITION (search for similar items in EconPapers)
JEL-codes: E31 E64 L13 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2001
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