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Switching Costs, Firm Size, and Market Structure

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Author Info
Simon Loertscher
Yves Schneider

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Abstract

In many markets homogenous goods are sold both by large global firms ("chain stores") and small local firms. Surprisingly, chain stores often charge higher prices. Examples include hotels, airlines, and coffe shops. We provide a simple model that can account for these pricing patterns. In this model, consumers face costs when switching from one supplier to another and change locations with a given probability. Consequently, chain stores insure consumers against switching costs. In equilibrium, chain stores charge higher prices, yet attract more consumers. Profits of local stores and chain stores increase with consumer mobility, but the latter do so faster.

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Publisher Info
Paper provided by Universitaet Bern, Departement Volkswirtschaft in its series Diskussionsschriften with number dp0515.

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Date of creation: Nov 2005
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Handle: RePEc:ube:dpvwib:dp0515

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Related research
Keywords: Firm size; switching costs; consumer mobility; market structure;

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Find related papers by JEL classification:
D43 - Microeconomics - - Market Structure and Pricing - - - Oligopoly and Other Forms of Market Imperfection
L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    Other versions:
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    Other versions:
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    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Andras Niedermayer, 2006. "Does a Platform Monopolist Want Competition?," Diskussionsschriften dp0604, Universitaet Bern, Departement Volkswirtschaft. [Downloadable!]
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