Re-examining the Effects of Switching Costs

Andrew Rhodes ()

MPRA Paper from University Library of Munich, Germany

Abstract: Consumers often incur costs when switching from one product to another. Recently there has been renewed debate within the literature about whether these switching costs lead to higher prices. We build a theoretical model of dynamic competition and solve it analytically for a wide range of switching costs. We provide a simple condition which determines whether switching costs raise or lower long-run prices. We also show that switching costs are more likely to increase prices in the short-run. Finally switching costs redistribute surplus across time, and as such are shown to sometimes increase consumer welfare.

Keywords: Switching costs; Dynamic competition; Markov perfect equilibrium (search for similar items in EconPapers)
JEL-codes: D21 D4 L0 L11 L13 (search for similar items in EconPapers)
Date: 2013-04-08
New Economics Papers: this item is included in nep-com and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Re-examining the effects of switching costs (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:45982

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