Markets with Search and Switching Costs

Chris Wilson

MPRA Paper from University Library of Munich, Germany

Abstract: By incorporating the additional existence of switching costs into an oligopoly search model by Stahl (1989), this paper dispels the misleading idea that search costs can simply be treated as a form of switching cost. Due to the assumption that search costs, unlike switching costs, are incurred unconditionally on the decision to switch suppliers it is shown that the anticompetitive effects of search costs are consistently larger than those from an equivalent level of switching costs. The finding suggests that obfuscation practices that aim to deter consumers from searching, such as competing on deliberately complex tariffs, may be particularly powerful relative to practices that increase the costs of substitution between firms, such as loyalty programs or termination fees.

Keywords: Search costs; Switching costs; Obfuscation (search for similar items in EconPapers)
JEL-codes: D43 D83 L13 (search for similar items in EconPapers)
Date: 2006-05-06, Revised 2006-10-06
New Economics Papers: this item is included in nep-com and nep-mic
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:131

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