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On Quantity Competition With Switching Costs

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  • Langus, Gregor
  • Lipatov, Vilen

Abstract

We build a simple model of quantity competition to analyze the effect of switching costs on equilibrium behavior of duopolists. We characterize the industry structure as a function of initial sales of two firms. Contrary to the literature, initial asymmetries persist in our model even though the firms are identical. When the disparity between initial sales is large, the smaller firm may become very aggressive and get more than half of the market in equilibrium. When the firms have similar initial positions, they tend to be locked in them.

Suggested Citation

  • Langus, Gregor & Lipatov, Vilen, 2008. "On Quantity Competition With Switching Costs," MPRA Paper 15457, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:15457
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    File URL: https://mpra.ub.uni-muenchen.de/15457/1/MPRA_paper_15457.pdf
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    References listed on IDEAS

    as
    1. A. Jorge Padilla, 1992. "Mixed Pricing in Oligopoly with Consumer Switching Costs," Working Papers wp1992_9203, CEMFI.
    2. Joseph Farrell & Carl Shapiro, 1988. "Dynamic Competition with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 19(1), pages 123-137, Spring.
    3. Farrell, Joseph & Klemperer, Paul, 2007. "Coordination and Lock-In: Competition with Switching Costs and Network Effects," Handbook of Industrial Organization, Elsevier.
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    More about this item

    Keywords

    quantity competition; switching costs;

    JEL classification:

    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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