MIXED PRICING IN OLIGOPOLY WITH CONSUMER SWITCHING COSTS

A. Jorge Padilla
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A. Jorge Padilla: Nuffield College

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: In this paper we develop a two-period model of duopolistic competition with consumer switching costs. Our model extends previous results in these kind of models in a more natural framework where products are undifferentiated except by switching costs. We also allow for differently informed consumers and a dynamic consumer tumover. In this model the competitiveness of markets with consumer switching costs is determined by the proportion of price sensitive consumers, that is fully informed uncommitted consumers, in the market. In contrast with previous studies, firms have different (asymmetric) market shares in equilibrium. Our model supports the presence of action-reaction in the evolution of markets with consumer switching costs, the possibility of (accidental) price wars, price promotions, and the possible optimality of strategic commitment to a low market share as a way to deter entry in this type of market. JEL nos. 022. 611 Keywords: Market share, mixed strategies, switching costs.

Pages: 40 pages
Date: 1991-01
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