 Customer poaching with differentiated products and switching costsNo 09/04, Working Papers in Economics from University of Bergen, Department of Economics Abstract: We consider a dynamic two-period model where two firms offer products that are differentiated a la Hotelling. Consumers purchase products in a first period, and in a second period consumers are locked-in to their first-period choice of producer with a switching cost. In the second period firms are able to price discriminate based on consumers purcase history from period 1. We show that i) firms will approach their rival's customers by low prices in the second period (customer poaching) and that ineffcient switching will occur, ii) second-period prices are dependent on first-period market shares, a result in contrast to some of the received literature. Finally, iii) with high enough switching costs first-period prices is below the level in a static setting, and more so the higher the switching costs and the more differentiated the products are. Keywords: Oligopoly and Other Imperfect Markets; Production; Pricing; and Market Structure; Size Distribution of Firms (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hhs:bergec:2004_009 Access Statistics for this paper More papers in Working Papers in Economics from University of Bergen, Department of Economics Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway. Contact information at EDIRC. |
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